My Lords, these amendments also relate to Schedule 2 covering the grey list, containing terms which are always assessable for fairness under Clause 62. These are terms that are likely to trip up even an astute consumer or that someone would not fully appreciate
when agreeing a contract. As the noble Baroness, Lady Drake, set out, consumers do not always appreciate the terms they have agreed, and I agree with the sense of the debate that this is not the easiest area in the Bill in terms of understanding exactly what is happening. I note the points she made not only about regulated areas but other areas as well, and I am grateful to her for making them.
I shall try to address the generalities and then perhaps I may move on to financial services, which are the subject of Amendment 56D. Let me reassure the Committee that there are protections in place to protect consumers from unfair variation clauses. Where traders include a term to allow them unilaterally to change the characteristics of the goods, service, or digital content being provided without a valid reason, that is included on the grey list as set out in paragraph 13 of Schedule 2. Those terms can be challenged in court even if they allow the consumer to exit the contract. For example, if a painter decorating your bathroom includes a term stating, “All materials may vary in style, colour and finish”, that term can rightly be challenged for fairness.
Where traders include a term to allow them unilaterally to change the price of the goods, service, or digital content being provided, that is also included on the grey list as set out in paragraph 15 of Schedule 2. In that case, a term can be challenged for fairness if the increase is too high and it does not allow the consumer to exit a contract. I should remind the Committee that just because an item is not on the grey list, it does not mean that it is fair or exempt from the fairness test. In order for a price term to be exempt, it must be prominent and transparent, and I believe that the requirement for prominence that we are introducing in this Bill marks a significant increase in consumer protection. I hope that the noble Baroness, Lady Hayter, will bear that in mind in her further consideration of this issue.
The noble Baroness, Lady Drake, mentioned that I had written round—thank you for that. It may be worth reiterating a couple of the points that I made in that letter. The Government are determined that lenders should treat mortgage borrowers fairly. That is why, during the course of this Parliament, we have strengthened protections in a number of ways. Most significantly, in April of this year, the new independent consumer regulator, the Financial Conduct Authority, introduced a revised set of rules as part of its mortgage market review. These provide stronger protections than ever before for borrowers taking out a mortgage to buy a home and, indeed, have changed the marketplace a bit. Among the key changes were improvements to sales standards and to affordability assessments. The FCA’s rules are designed to protect consumers who find it difficult to switch once market or regulatory conditions change. Therefore there is a general requirement on firms to treat customers fairly, but there is a specific provision within the FCA rules that forbids lenders from taking advantage of a borrower who is stuck with their current mortgage—a circumstance that the noble Baroness, Lady Hayter, referred to. FCA rules say that lenders should not treat these customers less favourably than other, similar customers. In addition to that specific provision, the FCA has provided for transitional arrangements that allow lenders to waive
the new affordability requirements for existing borrowers seeking to remortgage as long as they are not increasing the size of the loan. Finally, and most importantly, the FCA is also undertaking a review of its new mortgage rules which will consider how the rules are working in practice and whether any adjustment or clarifications are required. If need be there is scope for action and the FCA has the powers.
We believe that this amendment would significantly reduce valuable flexibility that lenders currently have in making commercial pricing decisions across the market. If we make it much more difficult for lenders to increase rates in response to changing market conditions, then lenders’ ability and readiness to offer the most competitive deals will be constrained. Ultimately, it will be mortgage borrowers who lose out.
In conclusion, we believe that introducing new legislative requirements would undermine the robust but flexible system of regulation that has been put in place in recent years. It would constitute a backward step in terms of delivering the Government’s aim to deliver a regulatory environment that offers consumers protection as well as choice and good value. I therefore ask that this amendment be withdrawn.