HC Deb 30 July 1976 vol 916 cc1161-74

3.28 p.m.

The Minister of State, Department of Prices and Consumer Protection (Mr. John Fraser)

I beg to move, That the Consumer Transactions (Restrictions on Statements) Order 1976, a draft of which was laid before this House on 14th June, be approved. There is a second motion, Mr. Deputy Speaker, but I understand the we are to debate them consecutively.

The Orders are made under Part II of the Fair Trading Act, which enables us to control trade practices which are detrimental to the economic interests of consumers.

I shall explain the background to the first Order, and I do so because there may be some criticism about omissions from it. If I understand the procedure, the criticism is not one which could be directed at me or at the Government. If the Director General of Fair Trading considers that a trade practice adversely affects the economic interests of consumers by misleading or confusing them, he may refer the practice to the independent Consumer Protection Advisory Committee with his proposals for bringing the practice under control.

The advisory committee, after taking account of the views of interested parties, reports to my right hon. Friend whether it agrees with the Director General. If the committee agrees about the detriment and accepts the Director General's proposals, with or without modification, we can lay a draft Order implementing the proposals. I must make it clear that there are definite limitations on the action open to the Government in respect of any particular practice. An Order may implement the Director General's original proposal or such proposals as modified by the Consumer Protection Advisory Committee, but we have no power to introduce our own remedies.

If for any reason we are unable to accept the Director General's proposals, with or without modification, the only alternative is to take no action about the practice in question. Because the Orders create new criminal offences, careful consideration has to be given to their terms.

Mr. Roger Sims (Chislehurst)

Can the hon. Gentleman clarify this? If the Department is not entirely satisfied with the proposals, is there no alternative to taking no action, or can it negotiate with the Director General about a form in which the proposals might be modified?

Mr. Fraser

It is not open to the Government to negotiate. The process would have to start all over again with a new set of proposals, which would go to the Consumer Protection Advisory Council. In the debates on the Fair Trading Act, the Consumer Protection Advisory Council was described as a jury. Because the Orders create new criminal offences the CPAC is interposed as a jury. If the verdict of the jury is against the proposals, it is not open to the Government to introduce their own remedies, even for negotiation. The matter must then drop.

The first Order gives effect to the recommendations in the CPAC's first report, entitled "Rights of Consumers" and is intended to ensure that consumers are not misled about their statutory rights should the goods they purchase not correspond to description, not be of merchantable quality or not be fit for purpose. It therefore prohibits the use, by traders when dealing with consumers, of notices and documents which purport to exclude those rights. The prohibition does not extend to business transactions. To give just one example, it will be an offence to indicate that no money is refundable, because the law is that if the goods purchased do not correspond to description, are not of merchantable quality or are not fit for purpose the consumer has an inalienable right to compensation or to have his money back.

The Order does not, however, do anything about such statements as 'no goods exchanged" even though the Director General also wanted them prohibited. The committee drew attention in its report to the fact that as such statements were not void in law they were not covered by the terms of the practice referred to. As my predecessor said when he announced publication of the report, the previous Director General had indicated that he would consider making another reference if it turned out to be impossible to get suitable qualifications of such statements.

There is one further provision in the Order. Consumers can also be misled about their statutory rights by the appearance on goods, containers or documents of statements about their rights against the supplier, or about obligations accepted by the supplier or manufacturer, should the goods prove defective. The Order therefore requires such statements, for instance, in a guarantee, to be accompanied by a further statement that consumers' statutory rights are not affected.

We have tried to be flexible about the dates on which these provisions will come into operation. The periods set out should ensure that there are no insuperable problems regarding printed material.

I have received representations on two aspects of the Order. The first is from the Finance Houses Association, which fears that its members, who are in law the suppliers of goods supplied on hire purchase, may be prosecuted for statements over which they say they have no control. Provided they act prudently, I am convinced that in practice their fears are groundless. I am strengthened in this view by similar provisions in the Fair Trading Act, the Trade Descriptions Act and the Consumer Credit Act—provisions for which the hon. Member for Gloucester (Mrs. Oppenheim) pressed when she was a member of the Committee which considered that latter Bill.

There is a liability on finance houses, but it is a defence for a person charged to prove that the offence was due to an act or default of another person and that he had taken precautions to ensure that neither he nor any other person under his control committed such an offence. I do not think that the finance houses should be absolved from having to take precautions. Provided they take those precautions, they have no cause for concern. I am not, therefore, prepared to accept their case.

I understand also that the Finance Houses Association fears that complaints against finance houses for possible breach of the order, even if shown to be unjustified, might prejudice their chances of obtaining licences under the Consumer Credit Act. There is no evidence to suggest that there is any substance in this fear.

Representations have also been made on behalf of the food manufacturing industry suggesting that manufacturers of prepacked foodstuffs would be discouraged from offering their existing guarantees of satisfaction if they had to accompany them with a further statement reminding consumers of their rights against the supplier. We certainly have no desire to discourage manufacturers' guarantees of satisfaction, which are useful not only to the purchaser of the goods—who has statutory rights—but also to the recipients of gifts, such as boxes of chocolates. I do not believe, however, and neither did the CPAC, that there is any real danger that manufacturers will discontinue giving such guarantees, even though they will have to be accompanied by a further statement. It might be an exercise for their copy writers, but I am sure that it would not be an insuperable difficulty.

I conclude by reminding the House that the Government are severely circumscribed by the provisions of the Fair Trading Act. I am not passing a judgment on that. This is a matter of fact. The Order must implement the Director General's original proposals, or those proposals as modified by the CPAC. The only alternative would be to take no action about the practices in question. I feel sure hon. Members will agree that to drop the provisions to which partial exception had been taken would be a loss to the consumer, out of all proportion to the possible gain to the supplier or manufacturer.

I hope, therefore, that the House will approve the Order.

3.36 p.m.

Mrs. Sally Oppenheim (Gloucester)

I am grateful to the Minister of State for leading us into calmer waters on these orders. I certainly support his concluding remarks and, indeed, the order itself, although I have some reservations. In fact, it would be most unusual for me not to welcome the order, because I have been associated in some small way with the genesis certainly of Article 3.

I had occasion to look back to an article in the Daily Mail of 4th December 1973, which appeared following a shopping expedition on which its representative had been kind enough to accompany me. A notice was displayed, beside a picture of myself, reading: No goods exchanged or money refunded", and the sub-title was The notice that she condemned. Following this, the journalist from the Daily Mail telephoned the customer service of the shop concerned, who replied "Yes, dear boy. The sign, of course, is not true." I should have though that was a very good reason for making the order.

But, as the Minister and the whole House will know, it has been a matter of considerable concern for many years that consumers have never adequately appreciated their rights under the Sale of Goods Act and under the Supply of Goods (Implied Terms) Act and signs of that nature help to mislead consumers even further. I therefore look upon the order as being of an educative nature, and I hope that is the way in which it will work out.

Having said that there is a lack of understanding on the part of consumers and that they want to understand their rights and to be able to pursue their rights and obligations, I should like to deal very briefly with the reservations which have been expressed, and with which the Minister has dealt.

The Minister mentioned the memorandum sent to him by the finance houses. It was also sent to me. I have a certain sympathy with their case. As the Minister knows, this is not an entirely new liability.

During the Second Reading debate on the Consumer Credit Bill I welcomed the new partial liability under the Supply of Goods (Implied Terms) Act. While the vast majority of finance houses are entirely reputable, and while the vast majority only deal with entirely reputable companies, there have been some unsavoury incidents, where finance houses have been associated with pyramid selling, which would not apply in this particular case. In some cases the financier has been the site operator, selling caravans on hire purchase, and this has led to abuse of one kind or another.

But in any case, the finance houses were involved as long ago as the Trade Descriptions Act. There have never been any prosecutions under that Act, as the Minister has said, and the relevant section of the Consumer Credit Act—Section 75—has not yet been enacted. I hope, therefore, that the fears of the finance houses will remain unfounded. I think they have tended to exaggerate them. It would be bost unfortunate if their fears proved to be correct.

The second representation, which was made by the Law Society, has far greater validity. The Law Society represented that this measure could lead to the disappearance of guarantees and statements that were wholly to the benefit of consumers. The Minister himself referred to the simple guarantee of satisfaction found in boxes of chocolates, which in no way represents any sort of exclusion clause but which is entirely to the consumer's benefit and which I understand is often made use of by consumers, especially in times of inclement temperatures. It would be a great pity if such forms of guarantee of satisfaction were withdrawn altogether.

During the Second Reading debate on the Supply of Goods (Implied Terms) Bill, I expressed the view that I was concerned to see that exclusion clauses were not to be banned and that the fact that they were merely to be void could lead to further confusion among consumers and could lead to their being misled. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) made the point that a complete ban would complicate contractual law out of all proportion.

Further points were made that even those guarantees which contained exclusion clauses very often contained advantages for consumers which went further than their legal liability to do so, and that a total ban of exclusion clauses might result in their being withdrawn altogether. I accept that those were valid arguments, so much so that, before the Supply of Goods (Implied Terms) Act, people interested in consumer affairs were telling consumers consistently in no circumstances to sign guarantees since they would be excluded from their common law rights if they did so but, after the Act, the Consumers Association and most other consumers' organisations advised people to sign those guarantees because they would provide them with additional rights. I should be concerned if, as a result of this order, that sort of guarantee was not provided and consumers were deprived.

We have something in the place of having banned them altogether which is very considerably worse. Under this order, what is being said is "Yes, you can still put an exclusion clause in any form of guarantee so long as you say that it is not really an exclusion clause." This seems to be a course of action that will confuse and mislead consumers more than they are already confused and misled on this issue.

I wish to raise one other minor matter which I hope the Minister will not think is frivolous, because it is not. In some shops, it is rightly the practice that, where intimate garments of apparel are sold, there is very often a notification to the effect that these cannot be changed for hygienic reasons. It is most desirable that that prohibition should remain and not be interfered with by this order.

Having said that, I welcome generally the provisions of the order, apart from the reservations which I have made, and I accept fully the Minister's explanation that, after a great deal of argument and legal consideration, this, the first child of the Director General of Fair Trading and the CPAC is, on balance, well worth having. I hope that it will not prove to be a changeling.

3.44 p.m.

Mr. Roger Sims (Chislehurst)

I hasten to assure the Minister that I have no intention of doing anything that may involve him in leading the massed ranks of his hon. Friends into the Division Lobby on this order. However, I thought that he dismissed a little lightly the objections voiced by the Finance Houses Association, which seem to have some substance.

The effect of the order will be to put upon finance houses some responsibility for statement or actions which they cannot possibly control. Whatever precautions they take, some statement may be made verbally for which they will be held responsible. For the Minister to say that he felt that their fears were groundless was dismissing the matter more lightly than I should have thought appropriate, bearing in mind that when the finance houses made representations to the CPAC about this the CPAC said it felt that there was some substance in the representations, although it did not go anyway to meet them.

The other point I wish to make is that there are some precedents in legislation for this—there are defences in various Acts of Parliament if any prosecution takes place. But, in fact, no prosecution has taken place, and the ground has yet to be tested in the sort of situation that one could visualise arising from the regulations. The finance houses involved would have a valid defence.

As the Minister knows, the Health and Safety at Work Act suggests a precedent in the other direction. It distinguishes, with goods suplied on hire purchase, between the ostensible supplier—the finance house—and the effective supplier—the dealer. Quite clearly it pins responsibility on the dealer.

There is some substance in the points that the Finance Houses Association has made. I do not wish to oppose this order, but I hope that the Minister will deal more fully with this point in the association's representation.

3.47 p.m.

Mr. Michael Neubert (Romford)

My intervention need only be very short. Like my hon. Friends. I have received representations from the Finance Houses Association. I am not so much concerned with the first reservation, because there are provisions in different aspects of commerce for such liability to be established, and it is therefore a sanction on the supplier—the finance house—to be very careful to whom he chooses to grant his facilities. However, I did find the Minister's comments a little scanty on the second reservation. He said that there was no evidence to suggest that the grounds for fearing apprehension were correct. At this present early stage of licensing under the Consumer Credit Act I find it very difficult to imagine what evidence he could have because we are dealing with largely unexplored territory. It is obviously a point of substance to the Finance Houses Association. It is a ground for discussion and I do not think it should be dismissed too lightly.

3.48 p.m.

Mr. John Fraser

Of course there is no evidence of the practice of similar provisions under the Consumer Credit Act because these sections of the Act are not yet in operation. But they have similar liability under the Trade Descriptions Act and there have been no prosecutions in the period in which that liability has existed.

Perhaps I should read the defence available under Section 25 of the Fair Trading Act 1973. The first line of defence is: that the commission of the offence was due to a mistake, or to reliance on information supplied to him, or to the act or default of another person, an accident or some other cause beyond his control. The second line of defence is: that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence by himself or any person under his control. Therefore, that means there are two adequate defences available to the finance houses. When I considered their representations my judgment was that it would be wrong to absolve them from all responsibility for the acts or omissions of those to whom they supplied money. We have had experience over the losses suffered by many people with pyramid selling—losses which were financed by finance houses. I am not complaining about what they did, because it was perfectly lawful, but I think that they should exercise some control, some diligence and some oversight over those with whom they are dealing.

If one examines the defences available under the Fair Trading Act one sees that there is not too great a burden put on the finance houses. A finance house must be selective about its agents. It must exercise reasonable precautions and due diligence. We have considered the association's representations very carefully—my colleague in another place even asked for an adjournment of a debate while these considerations took place—and we feel that we have now got the balance right. There is a precedent for it in earlier legislation and a confirmation of it in later legislation.

The hon. Lady said that there would be some difficulty if the seller who was forced to put in an exclusion clause then had to put in a further statement saying that it was not actually an exclusion clause. I know that is how the legislation appears, but I think that the consequences of it will be that the exclusion clause will not be put in the first place. I am sorry that this has had to be done in such a way that the purported taking away of someone's rights must be accompanied by a further statement to say that they are not being taken away at all, but I think that the consequence is that that kind of statement will not be made.

The hon. Lady raised what she said was a trivial point, but I did not consider it to be so. My mother was a corseteer at one time, and I think that I am right as the solicitor son of a corseteer in saying, that when goods of the nature she mentioned had been used it would probably be held to be too late then for the person to reject the bargain. The basic conditions implied into a bargain under the Sale of Goods Act would probably have been by then converted into warrantly, and one would have to seek compensation and not the total return of the money. I said that the statement that no goods would be exchanged is not outlawed by the Order. For quite different reasons, the result is the same.

Mrs. Sally Oppenheim

Whereas the statement is not outlawed, it must be qualified by an explanation.

Mr. Fraser

It does not have to be qualified. The statement "no goods exchanged" is not affected in any way and the reason for that is that there is no legal obligation to exchange goods. Therefore "no goods exchanged" can be interpreted as a statement of the law which is not misleading. The law is that goods are not exchangeable. There is no provision that goods have to be exchanged, and because there is no breach of the law "no goods exchanged" is simply a description of the law as none of the proposals of the Director General to deal with that statement can be put into effect.

Mrs. Sally Oppenheim

That does not apply to "all money refunded".

Mr. Fraser

No, it does not apply to "all money refunded" because if there is a breach of a condition in the Sale of Goods Act the money must be refunded, and that would be a purported taking away of someone's rights. But the statement "no goods exchanged" is not a purported taking away of someone's rights and therefore the order does not deal with that. It may raise problems, but if it does the Director General will have to look at the matter again.

I said that there were two main sources of representations, but in fact there are three, the third coming from the Law Society, which made its representations very late. It maintained that if the first-mentioned statement was a fair statement of the consumers' statutory rights, or one which went even further, it would have to be accompanied by a further statement. This is technically true, although it is hardly true that a court would convict in such circumstances, even if an enforcement authority was likely to prosecute.

Secondly, it could be misleading simply to state one of the consumers' statutory rights and to omit the others. There might be circumstances in which it was the omitted right that the consumer needed most to rely upon, and therefore statements of that nature could be misleading or confusing.

As to statements which go beyond the statutory rights, I think that, for example, if a trader displayed a notice that in certain circumstances goods would be exchanged, the consumer would be entitled to be reminded that he also has statutory rights. It would be no consolation to a dissatisfied consumer to have goods which are not of merchantable quality replaced by goods which are equally unsatisfactory, and he might be entitled to a refund of his money.

It is right under the circumstances that a further statement should be made, and I do not think that the matters to which the Law Society draws attention will place any reputable trader in difficulty.

Question put and agreed to.

Resolved, That the Consumer Transactions (Restrictions on Statements) Order 1976, a draft of which was laid before this House on 14th June, be approved.

3.55 p.m.

Mr. John Fraser

I beg to move, That the Mail Order Transactions (Information) Order 1976, a draft of which was laid before this House on 14th June, be approved. This Order gives effect to the Director General's proposals relating to one of the three practices in his second reference to the CPAC. It provides that mail order advertisements, catalogues and such like inviting prepayment for goods should state the name of the seller and the address where his business is managed. It will help the consumer should he for any reason wish to get in touch with the seller after sending his money or receiving the goods.

The other practices referred to the committee related to seeking mail order customers without undertaking to return the money if the goods are not sent within a specified period and taking payment for goods, other than through mail order transactions, without arranging for the money to be returnable if the goods are not supplied within a specified period. The committee agreed that both practices adversely affected the economic interests of consumers. In the case of mail order business the committee modified the Director General's proposals, but there are serious objections on grounds of both vires and legal policy.

First, the proposals do not relate to the practice referred to the committee and, secondly, they are objectionable in that they would give consumers, by means of the criminal law, rights in respect of their transactions which should be conferred, if at all, by civil law. Furthermore, the proposals would regulate by criminal sanctions not only the formation of the original contract—we accept that as right in the Trade Descriptions Act—but the effects of breach of the contract. In these circumstances, we felt that we could take no steps under the Order to regulate the practice. It is doubtful whether we have power to do so anyway.

The committee disagreed with the Director General's proposals for dealing with prepayment other than in mail order transactions because it felt that they were potentially damaging to both traders and consumers. The committee was unable to suggest any modification of the proposals which would avoid the potential problems, and we were thus precluded by the Fair Trading Act from taking any action.

I appreciate that it is by no means satisfactory to have the CPAC find practices adversely to affect the economic interests of consumers and not to be able to do anything about them. It is, of course, open to the Director General to consider making a further reference in different terms and I am sure that the new incumbent of the post, who was himself a member of the CPAC, will give the matter due consideration.

There is not much left of the original proposals but the Order is a useful measure of consumer protection and I commend it to the House.

3.58 p.m.

Mrs. Sally Oppenheim

I shall not delay the House on this Order. I agree with most of what the Minister said and join him in regretting, that the main recommendations were not implemented because they could not be.

To what extent is the hon. Gentleman looking to see whether there is any way in which the structure of the Office of Fair Trading or the Act, which created the problem, can be amended? The situation is unsatisfactory at present. Can he confirm that the reason for the Order has been the activities of a very few fly-by-night operators in the mail order business and that it has nothing to do with the main large companies? There has been considerable fraud by these small operators which has affected consumers and caused the Fraud Squad a great deal of trouble because it has been unable to catch up with those responsible.

Finally, how will consumers be protected by the Order if a false name and address are given in an advertisement or someone disappears from premises overnight, as has happened in the past? Having expressed my one small reservation about the Order, I think that the House should approve it without further ado.

4.0 p.m.

Mr. John Fraser

Regarding fraud, I think that we shall have to rely upon the vigilance of those who take the advertisements to see that the addresses are genuine. It is not possible to give any guarantee, no matter how much we try to protect the consumer, that some people will not be fraudulent. The fact that advertisements normally appear in magazines or newspapers should provide some degree of protection, not only by the Order but by the practices of those who take advertisements. That, off the top of my head as it were, is the only further protection of which I can think.

I agree with the hon. Member for Gloucester (Mrs. Oppenheim) that companies which conduct mail order transactions have a high reputation. They often serve the convenience of their customers, especially those in the lower-income groups. We have not had many complaints about their practices. I think that they have a high standing among members of the public generally.

The third point made by the hon. Lady related to changes in the Fair Trading Act. It is a little too early to come to the House and suggest changes which might take place. We must look carefully at the way in which the Act is operating to see whether any kinks need to be ironed out. The experience of these first two references and some of the difficulties about the absence of powers which will enable the Government to act, if there is not concurrence between the CPAC and the Director General, are matters on which we should reflect. However, I do not want to rush into a judgment on those matters at the moment.

Question put and agreed to.

Resolved, That the Mail Order Transactions (Information) Order 1976, a draft of which was laid before this House on 14th June, be approved.

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  1. STANDING COMMITTEE ON STATUTORY INSTRUMENTS, &c. 51 words