My Lords, we now move to a tricky and, from our point of view, rather serious amendment. The other amendments have been serious, but this is a significant amendment that we wish now to move. Amendment 21 stands in my name and that of my noble friend. I shall speak also to Amendment 22.
Clause 24 deals with the right of the consumer to receive a refund for faulty goods. It allows the seller to make a deduction from that refund to reflect the use that the consumer has had of the goods if it has been over some time. For example, if a sofa falls apart after a year—and, no, I do not have such a sofa—the seller can deduct a proportion of the price which reflects the use that has been made of it at that time. However, if the refund is sought within six months, there should be a full refund with no deduction for use.
However, the Bill creates an exception to that full refund within six months for items that it describes as having an “active second-hand market”. Our fear is that this could undermine the otherwise clear and final right to reject. Our amendment would remove that exception and retain the principle of a full refund in the first six months for all goods.
Our understanding of the background to the introduction of the “active second-hand market” let-out is that it addresses the particular issues of new cars, which it is estimated lose 40% of their value in their first year, about 10% in their first couple of yards as they are driven off the forecourt and up to 20% in the first 30 days. The argument is that a car dealer should not be required to provide a full refund in the first six months when, simply because of the way the car market works, the car has lost a significant amount of its value.
However, it seems to us that if the consumer, wanting a new car, has bought a faulty one, they should get a full refund. Otherwise they cannot replace what they thought they were buying—a new car—with another new car, because there will have been this deduction in value. They will not be put back in the position where they can buy a car and be the first registered owner, which is what makes it an especially expensive thing to be the first owner of a car. The sums involved are quite considerable. I have it on good advice—since I have not bought a new car, but rather have a newly bought car—that a new car could cost £35,000 but, if it was faulty, the dealer could reduce what they got back by £5,000. That leaves the consumer without a new car but with only £30,000 instead of £35,000 in their bank, and perhaps only 500 miles on the clock.
The other issue about the drafting of this clause is that it does not restrict the exemption from the deduction for use only to cars, but covers every other sale of good where the trader can demonstrate that there is an active second-hand market. The Government have argued that they have carefully drafted to cover only second-hand markets for sale “by traders to consumers”, to exclude the general eBay type of second-hand markets of individuals selling to individuals. There are a lot of other second-hand markets of traders to consumers, both online and on the high street, of furniture, second-hand clothing, vintage jewellery and—as I know better—bicycles, and so on, but if you bought a new one and that turns out to be faulty, you want the money back to buy another new product.
We are therefore worried that consumers will be denied a full refund for new furniture that collapses, clothing that is so damaged that you cannot even wear it, or broken jewellery, simply because there is an “active second-hand market” for these and the trader
says, “I’ll deduct it for use, because you had some use of it”, even if they could not wear it or carry it, or whatever the case may be. Another problem is that, as the clause currently stands, the seller determines how much should be deducted for use; it is not a negotiable price. That creates quite an escape clause for dodgy traders, who have the freedom to set that reduction-for-use amount without it being reviewable as an unfair term because it would count as priced.
The then Office of Fair Trading and the Law Commission have both opposed this exception. The OFT thought that the drafting on “trader to consumer” did not exclude eBay-type comparisons, as many traders operate on eBay. The Law Commission opposed the deduction for use for the first six months and has urged us in Parliament to consider removing it, citing how much ill-feeling was caused by such deductions. As it said:
“Consumers felt that where they had paid for new goods, they wanted new goods. If the first goods were faulty, they wanted to be able to start again, with enough money to buy other new goods, not second hand ones”.
Which? worries that the let-out,
“could leave consumers out of pocket”,
and,
“does not give consumers the certainty and protection they need”.
I understand that the Government have been focused on this let-out being for these very high-value goods, which lose their value very rapidly. The Minister in the other House said that the drafting had followed the recommendations of the BIS Select Committee. However, the Select Committee was critical of the drafting, pointing out that the lack of a definition of an “active second hand market” had been criticised in many submissions that it received. It also said that it would apply to most goods, which rather contradicts what the Government said about there “normally” being no deduction for use. The committee felt that the drafting would cover a lot of goods, and pointed again to the advice of the Law Commission that the deduction for use was “inflammatory” for consumers. According to the Select Committee, the Law Commission also said that it was rarely employed, so it may be an unnecessary complication.
The Select Committee concluded that,
“neither the policy … nor the drafting … on deduction for use is clear”.
It did not believe that the exemption from the six-month refund rule was workable, and recommended the deduction-for-use clause. It said that, should the provision be retained, the reference to a second-hand market comparison should be removed, with any deduction for use being based on the lifespan of the goods. In the case of the car I assume that this means that, if you had it for five months, the deduction would be based on five months’ use rather than on whether you could actually buy a five month-old car.
The clause may again be well intentioned and aimed at a particular problem with a particular product, but the catch-all is so wide now that it is probably misguided.
It certainly seems unworkable, could be unfair and could undermine consumers’ rights on a much wider range of goods.
The British Vehicle Rental and Leasing Association supports our amendment. It pointed out that in certain industries, particularly electric cars, there has not yet been enough time to develop a second-hand market, which might make it less likely that people would buy a new type of car. They would know that if anything went wrong with it they might lose their rights and be less likely to get their money back, the second-hand market not being a deep one.
I urge the Government to rethink the clause. If it really is simply cars that they have in mind, it might be better to deal with them in a different way rather than risk a much wider range of goods being caught by this provision. I beg to move.