Trading Check Services (Hansard, 10 December 1981)

§ Mrs. Sally Oppenheim

The report is being published today.

The commission's main findings were that scale monopoly situations existed in favour of Provident Financial Group Limited—Provident—and that a complex monopoly situation existed in favour of Provident, Cattle's (Holdings) Limited—Cattle's—Compass Paget Limited—Compass Paget—and those other suppliers of trading check franchise services which employed a "no discrimination" policy whereby they excluded or restricted a retailer's freedom to charge, on presentation of trading checks, vouchers and bonds, prices different from those charged in the case of cash or other means of payment.

The commission did not find that Provident's scale monopoly operated against the public interest; but They concluded that the complex monopoly situation operated against the public interest in as much as it had the effect of preventing a retailer from competing with other retailers by offering different prices to users of referende services and other customers, so depriving customers of an important choice in purchasing goods or services and, in some cases, possibly leading to increased prices generally to all a retailer's customers.

The commission also found that Provident's practice of including in its agreements with some retailers a restriction on dealing with other trading check suppliers operated against the public interest because, although Provident might not actively have enforced the restriction, it might have been regarded by retailers in whose agreements it appeared as still binding upon them and so have the effect of leading them to restrict their use of the services of other trading check suppliers and reducing competition in the supply of trading check franchise services.

The commission made two recommendations. It recommended that Provident, Cattle's, Compass Paget and other suppliers of trading check franchise services should be obliged to abandon the "no discrimination" policy, that the terms of any existing contracts between suppliers and retailers providing for this should be declared unenforceable, and that it should be illegal to include such terms in any new contracts. It also recommended that Provident be asked to give an appropriate undertaking to the Director General of Fair Trading that the provision restricting retailers from dealing with other trading check suppliers would not appear in new retailer agreements—except agreements with "scheme operators"—and that all the company's existing 446W retailers—apart from "scheme operators"—would be formally notified that the provision was no longer effective.

The commission also made two suggestions. First, it suggested that consideration be given to what means could be used to ensure that retailers gave customers adequate notice of any difference between prices charged for trading check and other sales. Second, it suggested that, when sufficient time had elapsed for a proper assessment to be made of the effect of the advertisements and quotations regulations under the Consumer Credit Act 1974 on the practices of the check trading business and the use of credit by customers, the Department of Trade and the Office of Fair Trading should consider whether a more extensive disclosure of annual percentage rates of the total charge for small amounts of credit would be in the public interest, and whether it might be prudent to avoid raising above £30 the present limit exempting certain credit agreements from the legislation.

The commission found parallelism in the charges made to customers by the principal companies and considered that this limited to some extent price competition between them. However, it made no recommendation on this issue in view of the likelihood that competition from other forms of credit would increasingly modify the restrictive effect. It also found that charges to customers were higher than charges for most other forms of consumer credit, but, in view of the difficulty of allocating costs accurately between franchises and consumers, could not judge whether the charges were excessive.

The commission found that the discount rates chrged to retailers were high. Retailers were prepared to accept the rates mainly because in most cases the charges made in any one year were relatively low, and because they acknowledged that the service was costly to the trading check companies, mainly owing to the arrangements for collection of payments from customers' homes.

Finally, the commission found that the profitability of the check trading companies compared favourably with that of other finance companies, but it concluded that profits were not excessive, even in the case of Provident, which was the largest and, until 1979, the most profitable of the trading check companies.

My right hon. Friend has carefully considered the commission's conclusions and recommendations. He accepts the commission's recommendations that Provident should not include in new retailer agreements—except agreements with "scheme operators"—a provision restricting retailers from dealing with other trading check suppliers and should formally notify all the existing retailers—apart from "scheme operators"—that the provision is no longer effective. He is asking the Director General to seek an appropriate undertaking from Provident.

My right hon. Friend has decided against taking action to require suppliers of trading check franchise services to bring to an end the arrangements whereby they exclude or restrict a retailer's freedom to charge, on presentation of trading checks, vouchers and bonds, prices different from those charged in the case of cash or other means of payment.

In reaching this decision my right hon. Friend accepts the commission's analysis of the market and acknowledges the possibility that some traders, in order to recover the cost of the charges payable to the trading check companies, could increase their marked prices to all their 447W customers and that such cross-subsidisation might, if it occurred on a significant scale, be undesirable. He has, however, taken a number of other factors into account. Trading checks and vouchers are used as a means of payment for a relatively small and declining proportion of retail sales, and there are a variety of more significant pressures on the retail prices of the sort of goods trading checks are mainly used to buy. There is not therefore likely to be any perceptible increase in the general level of retail prices for these goods resulting from the "no discrimination" policy in respect of trading checks. In addition, trading checks are mainly used by less well-off members of the community who have few alternative means of obtaining credit for the purchase of the larger essential items in the family budget and who would therefore be particularly vulnerable to surcharging. They would not know at the time they obtained their trading checks whether or to what extent they might be surcharged and would be confused by differing arrangements for surcharging in different establishments.

My right hon. Friend has concluded, in the light of all these considerations, that action to end the no discrimination policy would not be warranted. The effect of this decision is that it will continue to be a matter for the trading check companies and retailers whether the arrangements between them allow retailers any freedom to surcharge.

My right hon. Friend has noted the commission's suggestions regarding more extensive disclosure of annual percentage rates for small amounts of credit and whether it would be prudent to avoid raising the relevant £30 limit for certain small credit agreements and will take them into account in his current review of monetary limits in the Consumer Credit Act. The Director General will also take them into account in carrying out his general duty to keep under review the working of the Act.