Update: consumer

The new White Paper 'A Better Deal for Consumers' is a whirlwind of promises '“ what it will deliver is less clear.

Published on 2 July, it proclaims 'real help' for people in financial difficulties and 'longer-term measures to bolster confidence'. Its principle aims are 'to help keep people in their homes; offer advice to those in debt; deal with sharp business practice; help vulnerable people cope with essential bills; and help consumers make better borrowing decisions'.

The headlines hailed its targeting of 'cowboy builders' and 'dodgy second-hand car dealers'; this was mere PR grandstanding. This is not the first consumer White Paper issued by this government. Many of these ideas have been seen before; some are trumpeted despite having been already implemented, others are as old as the rogue practices complained of.

Better deal for consumers

Much of the paper simply aspires to provide more information to consumers, to educate them to make better choices and to 'raise awareness'. For example, under the banner of 'helping people in debt' the government promised (and indeed has published) a new 'Debtors' Guide'. It also has promised to invest £300,000 in face-to-face debt advice (in effect this will pay for 12 debt counselors for six months). Further money will fund a 'self-help debt advice toolkit' which, we are confidently told, will 'enable people to negotiate'¦ and start making regular payments'.

Other measures are more practical, even if changes of law are seen as the prime solution to problems. Many reviews of various laws, industries and practices are tabled. The art is to consider which are more likely to reach the statute books. The most interesting measures whose progress may be worth watching are:

(a) The obligation to lend responsibly by 'assessing the creditworthiness of the debtor on the basis of sufficient information'. The overall proposals are described as 'a new approach to consumer measure'. This is not a new measure. It is a direct import from the European Consumer Credit Directive which must be implemented by June 2010. The fact that it allows borrowers to provide the information to assess their own creditworthiness does not inspire confidence.

(b) A consumer advocate to co-ordinate work to educate consumers and 'help them get their money back when things go wrong'. This is intended as a 'high profile' teacher and enforcer; a 'consumer tsar' known to the public and recognisable to businesses as a credible champion of its customers. 'The advocate will also engage directly with consumers through the media to, for example, warn consumers about the latest scams'. Gordon Brown said two years ago that 'we're moving from this period when celebrity matters'; apparently not '“ Esther Rantzen may be out of the frame, having blotted her copy book by threatening to stand for election against a Labour MP, but the consumer advocate is intended to be or become a celebrity.

(c) A ban on unsolicited credit card cheques. The credit card industry seems to have accepted this as quite probable and is already planning changes to its methods of marketing.

(d) A review by the OFT of the market for credit above 50 per cent APR.

(e) New powers for courts to prohibit persons from trading if they persistently breach their duties. There are no details of these powers and it is difficult to imagine such becoming law in the short term. The government intends to consult with stakeholders in 2010. This proposal is coupled with the most striking threat in the paper which is the proposal to make unfair trading practices a criminal offence. That would be problematic at best and would need care as to when unfairness becomes criminal.

(f) The aspiration to simplify and modernise consumer law. The intention is for laws 'simple enough for the average consumer to'¦ understand'¦ for the shop assistant to explain, strong enough to protect consumers'. These would be enshrined in a consumer 'bill of rights' after consultations over the period 2010 to 2012. Readers can provide their own assessment of these ambitions.

Other significant proposals from a legal perspective are:

(i) the Civil Justice Council will be asked to produce a definitive statement of the powers available to the courts on possession;

(ii) a fundamental review of residential mortgage law by the Law Commission;

(iii) an evaluation of the recent mortgage pre-action protocol and a consultation on the proposal that court approval is required for sale of owner-occupied homes by lenders;

(iv) new legislation to give tenants notice of repossession orders made;

(v) the aspiration for a simpler, clearer unified regime on unfair business-to-consumer contracts;

(vi) a consultation on the repeal of the Property Misdescriptions Act 1991;

(vii) a new code to regulate bailiffs, their fees and rights to seize goods; and

(viii) guidance from the OFT on what it considers to be irresponsible lending practices.

These latter proposals seem sensible and realistic '“ we shall see which of the other proposals end up on the statute book and which in the slough of forgotten ideas.

Unfair consumer contracts

On 10 July, in OFT v Foxtons Ltd [2009] EWHC 1681 (Ch), the High Court finally passed judgment on the fairness of Foxtons' commission due from landlords on sales to, and renewals by, tenants (see 'No uncertain terms', Solicitors Journal 153/23, 16 June 2009).

The judgment was unequivocal: such terms are unfair for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999.

The court avoided a wider implication that all letting agents' commissions are unfair and any prohibition on the use of any terms. Indeed, it does not prevent any person from seeking any commission.

All it did was to: judge that commissions on sales and renewals are not 'core' terms; comment that the terms in question were not in plain intelligible language; reinforce the view of Smith J in Bank Charges 1 that plain intelligible language is language which is 'sufficiently clear to enable the typical consumer to have a proper understanding of [contractual terms]'; and declare the relevant terms unfair if used in Foxtons' standard terms.

The unfairness largely lay in the sums at stake and the continued burden on the consumer to pay without commensurate services being received. It can, the judge thought, be demonstrated by the consumer's surprise if the true effect of the agreement were explained at the outset. Strikingly, he complained that Foxtons' latest revised terms for renewal commissions did not even have a 'flag' and were 'severely camouflaged' and carried a risk of 'ambush', 'time-bombs' or 'surprise'.

The overall lesson for letting agents is that they need urgently to review their terms and to be transparent as to their charges. They should set out when they expect additional commission to be paid and how much in text which is emboldened or otherwise emphasised.

Some agents and advisers have taken the cautious view that commissions on sales will always be unfair if they are included within letting terms. Of course, if such terms are not on standard written terms and are negotiated, they may yet be enforceable. The key is to make sure that the consumer understands and agrees the terms without undue pressure.

The case also gave the following further lessons for draftsmen and advisers in respect of contracts with consumers:

(a) terms which require cross-reference between clauses risk failing the 'plain and intelligible' test;

(b) words such as 'associated', 'connected' or 'nominee' which can be construed in several substantially different ways should be defined or avoided;

(c) clauses which require some 'legal mining' are unlikely to be fair; and

(d) all contentious terms should be emphasised, e.g. in bold or a separate box.

What happens now? Mann J heeded the Court of Appeal's warning to refrain from making any declaration as to the relief. That is a matter for the OFT and Foxtons to negotiate. If there is no settlement, the court will have to grant relief. That could have very wide implications. The court may grant a general injunction against the use of any term.

The OFT 'expects the letting industry to comply with this ruling' and threatens to take 'the necessary steps'. It said publicly on 10 July that it would apply for injunctions preventing the continued use of the terms by Foxtons. The hunt continues'¦

Personal Responsibility Bill

The silly season started early this year on 16 July when Norman Baker MP presented the Personal Responsibility Bill to Parliament. He wants 'to place upon the individual a greater responsibility for the consequences of his own actions'. A laudable aim, but laughable drafting has let it down. There is no doubt that the Bill uses plain English but its plain thinking condemns it to failure.

The Bill proposes that the courts 'must have regard to the principle that a person (P) is responsible for whatever may happen'¦ as a result of [his] own actions' and of P's 'failure to use common sense'.

It is not clear how the court should implement the principle. Does it override other laws, amend them or what? The Bill then slams it back into its box if another person is in 'clear breach of a duty of care owed to P' or if 'P has suffered injury or damage as a result of a deliberate act of another'.

Causation? Mitigation? Recklessness? Strict liability? There is no regard for the law's subtleties and the cautious and balanced development of negligence, contract and other streams of law.

The Bill also contains two specific suggestions:

(a) that the Health and Safety at Work etc. Act 1974 should impose no liability on any person for any accidental injury or damage which could have been averted if the claimant 'had used common sense'; and

(b) to amend the Law Reform (Contributory Negligence) Act 1945 so that no damages may be awarded 'where the fault of the person suffering the damage was a failure to use common sense'.

Just what is 'common sense'? Does it override other duties or laws? Is it the same for every person: businesses and consumers, adults and minors, those with disabilities? Can it require special levels of effort, analysis or risk-allocation? Is it required in emergencies or when the odds have been stacked against a claimant? Is it a stick to beat those who take risks? Can its absence really absolve the guilty?

The second reading of this Bill will be on 16 October. Norman Baker MP wrote the excellent The Strange Death of David Kelly. That is far more worth reading than this Bill, which will never reach the statute books.