My Lords, Amendment 56ZA, which stands in my name and that of my noble friend Lord Stevenson, deals with a similar area. It would add a type of contractual term to the list of what may be regarded as unfair. The purpose is to ensure that consumers do not have terms imposed on them which could leave them disadvantaged, specifically in a minimum or fixed-term contract where a price was increased and where they would then be disadvantaged if they were to switch products or providers. I refer to the discussion that we had on “mortgage prisoners” earlier in Committee.
Which? has pointed out that the Unfair Terms in Consumer Contracts Regulations 1999 recognise that such variation in contracts can lead to consumer detriment. However, the grey list, as currently drafted, would appear to absolve the person varying the terms of the contract from responsibility should the consumer be unable to end the contract. We discussed examples of where consumers could not leave contracts, for whatever reason. There are clear examples of where ending the contract would lead to significant consumer detriment—for example, if another mortgage is not available or one’s circumstances no longer qualify one for a mortgage. Merely being able in theory to terminate a contract does not alleviate the difficulty of a change being made to the contract for no good reason because the person concerned still needs to find another mortgage but cannot do so at that stage.
A mortgage is not the only kind of contract where growing older during its term could make it disadvantageous suddenly to have to find a new one. Life insurance is another such example, or home insurance where a neighbour might have experienced flooding or subsidence since the consumer first bought their own coverage. In the case of a university degree, where suddenly a subject is withdrawn, merely being able to move to another university does not mean that the student is not disadvantaged, especially if they have worked hard for two years at the first university.
This amendment is limited to fixed-term contracts and minimum-term contracts, where the expectation of the deal advertised is at its clearest. The fairness test allows consumers to challenge a term of a contract to make it non-enforceable. Any compensation would have to be decided separately, whether by the financial ombudsman or elsewhere. The Minister will be aware that the approach we are taking here was supported by the BIS Select Committee and the CMA, so I hope that the Government will find themselves in a position to support it, too.
Amendment 56D returns us to the issue of “mortgage prisoners”, although it takes a slightly different approach. It would add to the grey list a term in a contract which would give a mortgage provider the ability to increase the price of a mortgage in cases where the consumer cannot get a new contract for the reasons we have been through. It
would have the effect of giving a consumer recourse to argue that the change in the terms of the contract is not legal and should not take place. This consumer detriment, where people cannot get another contract, will be familiar to the Committee.
The Minister’s letter, received on 27 October, to which my noble friend referred, relates to Amendment 56ZA and contracts that vary in their supposedly fixed lifetime, such as a mortgage. However, it applies only to what the FCA is doing on mortgages. But the bottom line is that there is little concrete provision in the rules to stop a lender changing the terms of a mortgage deal that they have come to regret offering in the first place—perhaps when hidden terms and conditions allow them to do so—leaving consumers high and dry where there is no alternative product. Does the Minister agree that if the banks cannot honour the terms and spirit of a fixed mortgage deal, they should never have offered it in the first place? After all, consumers cannot exit the contract without penalty if this happens the other way round, when there may well be exit fees. Therefore, it is hard to see why the provider should be able to do so.
Furthermore, while the Bank of England example allowed BIS to deflect the issue back to the FCA, this issue can occur in other markets that are regulated by different regulators, such as Ofcom with telecoms fixed contracts and Ofgem with fixed energy contracts. Even more importantly, what happens where there is no regulator at all? Who would take action then? Would it be trading standards or the CMA? Again, it is worth noting that the CMA supports our approach to this.
I turn now to the other issue in the example of the Bank of Ireland. The Government said that it would be for the court to decide if the Bank of Ireland case was unfair, although the FCA has already said that it does not think it was. Furthermore, while the Minister says that consumers can go to the Financial Ombudsman Service, in fact that service adjudicated against the complainant because the unfair contract term regulations are not adequate in this case. The financial ombudsman actually cannot help unless the grey list is complete; that is, if it allows these terms to be open to assessment for fairness. Our amendment would add terms that vary by unknown amounts within a fixed lifetime to the grey list and would thus be able to be assessed for fairness. That is what we are trying to achieve.
I would add once again that although the Government have tried to use the particular case of mortgages to show what the FCA considers to be acceptable, we are worried about wider markets where it does not operate. The amendment would provide a clear route for someone to take their complaint in such a situation, and I hope that the Minister will either be able to accept it or will lay out plans to provide an equivalent level of protection within this legislation. I beg to move.