My Lords, in moving Amendment 55A, which is in the name of my noble friend Lord Stevenson and myself, I shall also speak to Amendments 56FA and 56FB in this group.
Clause 62(2) states:
“An unfair consumer notice is not binding on the consumer”.
We concur with that, but we are concerned that the consumer notice should clearly include any promotions that are designed specifically to catch the shopper’s eye. We are also clear that in assessing whether something is unfair, the CMA should be able to include some elements of price where those have been hidden from plain sight—that is, if the consumers do not appreciate their significance at the point of purchase.
To some extent this amendment and those in the next group are part of our attempt to ensure that consumers should not fall victim to hidden traps in the traded standard terms and conditions, and that while some core terms and some charges are immune from any fairness assessment, that should not be the case where such terms or charges may influence behaviour or where they are not fully understood at the point of sale. The Unfair Terms in Consumer Contracts Regulations put the terms into two categories: those that a consumer will or can be expected to properly take into account when deciding to enter the contract; and those that he or she will not or cannot. It is the latter that can be assessed for fairness.
The Consumer Rights Bill narrows the scope of the price exemption following the somewhat unwelcome 2010 Supreme Court decision on bank charges, but still assumes that the consumer will behave like a rational economic person and take account of all prominent information. However, behavioural studies tell us that people are often far more influenced by presentation than by the information itself, or put more emphasis on salient rather than actually useful information. As such, even when a price or term is
disclosed, consumers do not always factor that into their purchasing decision. They also tend to overvalue a benefit received now and underestimate the impact of deferred costs, which leads to an excessive willingness to pay at the point of purchase while underestimating the future use of the product, which may lead to future costs. Earlier in Committee we talked about a future fee, which a shopper may not consider relevant to them as they do not appreciate the likelihood of it affecting them.
Similarly, we know that consumers are influenced in their buying choices by a wide range of factors, which is what Amendment 55A seeks to cover. Indeed, it is interesting to note that one of the leading university departments specialising in behavioural economics—how consumers actually make decisions—the University of Warwick Business School, wrote to the Minister in the Commons on 7 October, saying that,
“simply providing consumers with information about a charge does not absolve the seller from the responsibility for ensuring the charge is fair and reasonable”.
The business school therefore asked that terms that are effectively “hidden in plain sight” should be assessable for fairness, but its wise words pertain also to other issues that might have been included in information put to shoppers with exactly the aim of tempting them into the purchase.
One example of this, which we know influences behaviour, is the choice of price times; in other words, when you find out about them. Research done in 2010 by the OFT shows that consumers make more mistakes and poorer purchasing decisions under what is known as “drip-pricing”, a form of partitioned pricing, where consumers see only part of the full price upfront and price increments then drip through the buying process. This can cause the most consumer detriment.
We all tell stories in this Committee. I was on the point of buying a walking jacket the other day because it was reduced to only £15. But as you get into it, you choose the colour, the size and whether or not you want a hood, and then you get insurance added on. The jacket was only £15 but the postage and packing was 1p short of £4. That is a very large amount to add on to the price but by that stage you have chosen the size, you have chosen the colour—it is a very clever way of selling. However, drip-pricing has a very negative effect on behaviour because we start our purchasing process before we see the whole price. Other offers, such as “take home today”, “easy to assemble”—I have fallen for that one—and “money-back guarantee”, are the ones that influence the buying process. We are not saying that they should be outlawed but they should be looked at for fairness.
Amendments 56FA and 56FB would amend the terms that cannot be assessed for fairness and replace them with,
“only where the price payable does not relate to future variable fees”.
Normally, price is absolutely not assessable for fairness, because it is assumed to be clear to the purchaser. It is up to them to decide whether to accept it and then it is part of the contract. However, future and unknown
prices within a contract need to be assessable for fairness, as the consumer is not in a position to judge them and evaluate their worth at the point of purchase. I beg to move.