My Lords, I thank the noble Baroness for her comments. Clause 50(4) protects a consumer from detrimental changes to their contract. The noble Baroness talked about midterm changes—a phrase that I rather liked; it is rather American in flavour. When I was a director of a building company, we used to call them variations. The subsection makes it clear that, when key information about the trader or service is amended, the consumer must agree to that change for the change to be effective. That already provides a significant level of consumer protection. The noble Baroness posited what happens if the consumer does not agree to a change proposed by a trader. The answer in part lies in subsection (4). If the consumer does not agree to a change to the information set out in subsection (3), the original agreement stands. The trader must uphold its side of the bargain without the change. For example, if the trader increases the price but the consumer does not agree, the trader must charge the consumer the original, lower, price and bear the costs of doing so. The law on unfair contract terms also protects consumers from changes made to a contract after it has been agreed. There is already existing protection, and we are strengthening that in this Bill. I look forward to discussing the issue next week because there are a number of relevant amendments.
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Perhaps I could summarise the position to help the discussion today. The protection is via the grey list—the indicative list of terms that may be unfair in Schedule 2. This list includes contract terms which allow the trader unilaterally to alter the characteristics of goods, services or digital content without a valid reason. Therefore, if a trader has built into their contract a clause which allows them to make changes to the contract without a valid reason, the consumer or a regulator can challenge
that term in court. If the court finds the term unfair, it is not binding on the consumer. For financial services contracts, such terms which allow price increases can be challenged for fairness unless the trader informs the consumer of the change at the earliest opportunity, when the consumer is free to exit the contract.
Those elements of unfair terms law protect consumers in the way that the amendment is intended to do. Notably, if a trader seeks unilaterally to make a change to a financial services contract, they must allow the consumer to terminate the contract without financial penalty. If they do not, the consumer can challenge the term in court for fairness. That threat of challenge is a significant incentive for firms not to use terms which allow unilateral changes to a contract. Given that existing protection, we are not convinced that further changes are needed.
The first half of the amendment would give consumers who were not happy to accept a change to their contract the right to terminate free of charge. We do not believe that that is necessary. As I explained a moment ago, for financial services contracts, that is already the case for price. For other contracts, traders voluntarily already do this in many cases. If a trader asks to make a change, it will be because they cannot complete the work without that change. For example, it may not be commercially viable for them. If the consumer does not accept the change it is in the trader’s interests to agree to terminate the contract. It would make no commercial sense for him to refuse a request to do so. We would not want to force traders always to offer termination where they have to make a change. That risks traders not offering certain services or not entering into complex contracts for risk of early termination. For example, a builder may not take on a complex and uncertain project if they have to take on the risk of offering to terminate the contract each time they make a change.
I always think of the restoration of my house, which needed quite a lot of work. We discovered as we went through the contract that the internal walls all had to be taken out because the structure of the house was far from what one would want in which to house one’s family. It is entirely fair that one would then negotiate a different arrangement in terms of what one had to pay. It is not in consumers’ interests that such complex services are withdrawn from the market.
The second half of the amendment would require traders to source an alternative contract for a consumer who does not want to accept a change. We do not think that that is practical for a trader. A trader would generally not know without significant costs whether a consumer would be disadvantaged by moving to one of their competitors. They would need commercially sensitive information from their competitors to analyse this or predict how the market will evolve in the future, as well as personal data about each potential consumer. Much of that information is, quite rightly, not readily available to the trader. Importantly, this change would impact negatively on the consumer because, ultimately, this could reduce one of the key benefits of competition: good deals for consumers. I strongly believe that. With this change, traders would be less inclined to offer good deals because it would mean they would be
prevented from being able to change the terms in the future, even if they needed to for valid reasons and the consumer was given the option of exiting the deal. Consumers may then get fewer special offers or good deals as a result.
As well as the protections I have set out, we all know that we have a stronger and more robust financial regulator than ever before. The independent FCA is responsible for the conduct and regulation of residential mortgage lending and sets the rules that mortgage lenders are required to meet to ensure that customers are treated fairly. As Martin Wheatley explained in his letter to Parliament at the time, the FCA now enforces a rule that communications must be clear, fair and not misleading. It is also now more likely to intervene earlier to address the root cause of problems for consumers.
I apologise for giving that fuller explanation but the point about how mortgages are dealt with is quite interesting. For those many reasons, we do not accept the need for this amendment and I ask the noble Baroness, if she is willing, to withdraw it.