My Lords, this is the first amendment to Part 2 of the Bill covering unfair terms, so allow me to set the scene. Part 2 responds to the Law Commission’s recommendations to the Government on how to improve the rules around contracts between a business and a consumer. The aim of this part is to provide clarity for business and consumers, resolve uncertainties and avoid lengthy court disputes in the future. The basic framework remains the same: terms in a consumer contract must be fair and they must be plain and intelligible. A court can decide whether a term is fair or not, but the “core bargain”, what you pay for and how much it costs, is exempt from that assessment in certain circumstances. The legislation also lists certain terms as examples which the court may look at, known as the “grey list”.
What are we changing in this Bill? I would draw the attention of noble Lords to two particular changes. First, we are making the “small print bigger”: price and subject-matter terms must be transparent and prominent to avoid a court being able to consider whether they are fair. That requirement for prominence to avoid assessment is new. Secondly, we are adding three new types of term to the grey list. These are the types of term which are always assessable for fairness. We are adding terms which permit the trader to claim disproportionately high sums in compensation or for services which have not been supplied where the consumer has attempted to cancel the contract. These are also known as early-termination clauses. We are adding terms which give the trader discretion to decide the subject matter or price after the consumer has become bound by the contract. These additions were recommended by the Law Commission and based on evidence of consumer detriment and case law.
I turn to the amendments specifically and, first, Amendment 55A. As I am sure the Committee is aware, one of the other ways in which this part of the Bill increases consumer protection is by bringing consumer notices into the scope of the fairness test and transparency requirement which currently apply only to consumer contracts. We based our explanation of what constitutes a “notice” on the current regime, specifically the Unfair Contract Terms Act 1977. We make clear in Clause 61(8) that a consumer notice,
“includes an announcement, whether or not in writing, and any other communication or purported communication”.
I can therefore reassure the Committee that “notice” has this broad definition, meaning more protection for consumers.
We have been asked whether the provisions in Part 2 include general statements such as adverts which are not made to a particular consumer but to all consumers. Such notices are covered by the unfair terms part of this Bill where they relate,
“to rights or obligations as between a trader and a consumer, or … purports to exclude or restrict a trader’s liability to a consumer”—
as stated in Clause 61(4).
I also remind the Committee that Part 2 complements other protections. First, this Bill makes clear that certain information the trader gives the consumer forms part of a contract for the supply of goods, service or digital content. For example, in relation to a contract for a service, Clause 50 provides that where a
trader gives a consumer information about a service they are offering, and the consumer relies on that information in deciding to enter the contract, the trader must comply with that information. Secondly, the Consumer Protection from Unfair Trading Regulations 2008 are already in place to protect consumers from being misled by a trader. I can therefore reassure noble Lords that the definition of “notice” has a very broad scope and that a wide range of notices are covered by Part 2 of the Bill. Both Part 2 and the other provisions and regulations will protect consumers from being misled.
On Amendment 56FA, concerns have been raised today that our drafting of the exemption will allow traders to surprise a consumer with additional charges after a contract has been agreed, without those charges being assessable for fairness. I do not like these surprises any more than noble Lords do. I would rather know about them upfront so I can shop around to avoid them. That is what the new requirement for “prominence” will allow. Traders should make such charges prominent when they enter into a contract. There should be no surprises. If there are, the consumer or a regulator can challenge them in court. Through that new requirement, consumers will for the first time have significant protection from unfair terms in the small print.
The noble Baroness, Lady Hayter, mentioned drip-pricing. The Bill will help protect consumers from drip-pricing, alongside the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 which say that these extra charges must be clear and comprehensible before the consumer buys. In contrast, were we to allow only the main price to be exempt from assessment for fairness, traders might just bundle all their charges under the headline price. That is not beneficial for consumers or creating a competitive marketplace. The Law Commission recommended to us in 2013 what you see in the Bill now. It considered this a careful balance between protecting consumers and allowing the market to operate. The Government agree with that view; we need an unfair terms regime that works in practice.
On Amendment 56FB, which would change the requirement for prominence under Clause 64, concerns have been raised that our current definition allows terms to be “hidden in plain sight”, where a consumer could see and read a term because of its prominence but still not appreciate its significance. We recognise that consumers rarely read terms and conditions and that those who do may not fully appreciate how they will impact them. After thorough consultation we agreed with the Law Commission’s recommendations that the way to tackle this was through transparency, prominence and the maintenance of the grey list—that is, the list of terms which are always assessable for fairness. In answer to the concern of the noble Baroness, Lady Hayter, about customers being irrational, I understand that the Minister has responded by letter to the University of Warwick academics on this particular point. I am not sure whether the noble Baroness has seen a copy of that letter.
The grey list is key to protecting consumers from terms which they may not fully appreciate when agreeing to a contract because it covers such a very wide range
of such terms. We are therefore making clear in the Bill that terms on this list are always assessable for fairness. We are also adding three terms to the list, again on the recommendation of the Law Commission, thereby protecting consumers from three additional types of term that they may not fully appreciate when they agree to a contract. Finally, we are taking a power in the Bill to allow us, after parliamentary scrutiny, to update the grey list. That means that were consumer or trader behaviour to change, we could add terms to the grey list to accommodate that.
I agree with noble Lords that consumers might not appreciate all the terms when agreeing a contract, but I think that we have already addressed this in the Bill as drafted. I hope that I have explained our reasoning for accepting the Law Commission’s recommendations for the construction of Clause 64 and I therefore ask that this amendment be withdrawn.