My Lords, I support Amendment 46A, which covers a matter that I raised in Second Reading. The Government’s reasoning in strengthening consumer law through this Bill is that empowered consumers will make markets work more effectively and drive economic growth. However, I fear that the failure in this Bill to align the statutory rights of the consumer as between the sale of goods and the sale of services will weaken the protection of the consumer and result in less efficient markets in the provision of services.
As we know, goods supplied must be “of satisfactory quality” whereas services have to meet only a requirement of being provided with “reasonable care and skill”. In
effect, the standard for services is based on fault rather than on satisfactory quality, as my noble friend Lady Hayter said, which is an outcome measure. It may prove more difficult for consumers to prove that a service has not been provided with reasonable care and skill because the focus is on the way in which the service was carried out rather than the quality of the end product. So there will still be many circumstances in which the consumer has not received what they paid for but will not be entitled to a remedy because the trader has exercised “reasonable care and skill”, because that measure focuses on compliance rather than on outcomes. That is a two-tiered standard of approach to consumer protection, and this amendment goes some way towards trying to address that problem.
In certain sectors and markets, the asymmetry of knowledge and understanding between trader and consumer is extensive—we know that. It should be remembered that the scale number of complaints come from consumers in sectors such as energy, broadband, mobile phones and—a sector close to my heart—financial services. Furthermore, the challenge of inertia and consumer behavioural bias, with which we are all familiar, can be used quite systematically by some service providers to deliver a poorer service or sustain profitable inefficiencies. That strengthens the need for consumer protection. However, I feel that in this Bill there is a lost opportunity by constraining to “reasonable care and skill” the statutory standard in respect of the provision of services.
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In financial services, evidence frequently demonstrates that, while the provision of services may comply with the regulatory requirements, the products supplied often fall short of delivering a desirable quality for the consumer. It is a persistent problem in that sector. A reliance wholly on “reasonable care and skill” will not address the mis-selling or the poor product design problems that have persisted in the financial sector. It is not the absence of care and skill that causes these problems; something else goes wrong—something such as conflict of interest, complexity or lack of transparency, any one of which leads to consumer detriment. Because the onus is not on the service provider to deliver a satisfactory outcome, there is protective clothing for the provider in merely adhering to the regulatory rules.
I quote John Kay in his review. He criticised FCA rules as falling,
“materially below the standards necessary to establish the trust”, and “confidence”.
That was a review commissioned by the Government. He may have been looking at a particular part of the financial sector, but there was a sort of generic message in that observation that that kind of approach to rules compliance without a focus on the outcome is not going to deliver effectively for the consumer.
The Government argue that an outcomes-based quality standard for services exposes the trader to too much risk but that can be qualified by reference to the “reasonable expectations” of the consumer. Whether something is of satisfactory quality is an objective test based on what was agreed, the price paid and what a reasonable person would expect in the circumstances. Such a test would—and, indeed, it should—be in large part reflective of best practice. It should not be considered
a burden to business to deliver to a satisfactory quality; otherwise, the danger is that the Government are in effect arguing that, for business to operate, it is necessary to build inefficiencies into the service market.
I was reading up on some of the Which? briefings in preparation for today. People, employing common sense, often know best. The Which? research showed that consumers do not generally feel well protected when they purchase services. The research identified that 31% of consumers who failed to complain when they were unsatisfied with a service did so because they did not believe that anything would be done. Amendment 46A starts to address the weaknesses of having this two-tier approach to statutory standards for goods and services.