1. The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 47 UK building societies. Mutual lenders and deposit takers have total assets of over £375 billion and, together with their subsidiaries, hold residential mortgages of £245 billion, 20% of the total outstanding in the UK. They hold more than £250 billion of retail deposits, accounting for 22% of all such deposits in the UK. Mutual deposit takers account for 31% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
2. The BSA is pleased to provide comments on the consultation by the Department of Business, Innovation & Skills on clarifying consumer law (the consultation).
The Current Situation regarding Consumer Law
3. The BSA has taken a keen interest in consumer law simplification for several years. For example, in 2008, in response to the Government consultation Consumer Law Review: Call for Evidence (referred to on page 16 of the consultation), we provided a series of specific suggestions and an analysis of what a coherent set of fair play mechanisms could look like - www.bsa.org.uk/policy/response/dberr.htm.
4. As we pointed out in the above response, despite the fact that successive Governments have apparently been committed to deregulation for several decades, the range of fair play mechanisms has increased throughout the relevant period. We understand why, in the face of serious episodes of consumer detriment, this has happened but it leaves us with a very complicated, often overlapping, set of rules that is bad for consumers and bad for business. Patently, the plethora of rules and regulations have not improved the protection of consumers – there must be a better way and it is time for a genuine change of approach. We agree with the comments, quoted in the consultation, from the findings by the University of East Anglia –
"the current system of consumer law offers a high degree of protection but is confusing and complex because it has grown up piecemeal over the years. This has resulted in overlapping and sometimes complex law that is often expressed in outdated language and unevenly enforced.”
Indeed, the protections for several groups of consumers appear to lag considerably behind the safeguards for consumers of certain other services; for example, clients of claims management companies (CMCs) have very weak protections – but currently under review - when compared to consumers in some of the services and sectors that CMCs lodge complaints about. We appreciate that such inconsistency is partly because problems come to light on different timescales but, nevertheless, an uneven series of protections across the board (with weak protection for some of those in particular need) is unacceptable.
5. Why we have reached a situation where (to quote the Government following the 2008 review) “there would be significant advantages to simplifying the structure and language of consumer law and consolidating it so far as possible into one piece of legislation”? We suggest the following reasons –
‘gold-plating’ of EU laws by certain UK authorities
'front-running’, ie where the UK introduces new laws in anticipation of EU provisions with the result that two new sets of law ultimately have to be implemented, usually at different times and with complicating results – the UK’s sequential handling of changes to consumer credit law in the first decade of the 2000s is an example of this damaging practice
introduction of new rules as a substitute for enforcing existing ones – rather than enforcing existing rules or laws effectively in the face of poor treatment of consumers, the tendency has been to introduce further provisions as a ‘signal’ that something is being done.
6. It would not be easy to consolidate consumer law into one piece of legislation. The matter is far from straightforward because so much law derives from the EU, because of the complications presented by the need for horizontal and vertical legal and rules regimes, and because there are a series of competing interests that would inevitably drag in different directions. Nevertheless, we believe that both consumers and good businesses with high standards of treating customers fairly would benefit from a consolidation that was strong, clear, and (as far as practicable) future-proofed. As indicated in our 2008 work (see above), the BSA would be happy to co-operate with other relevant parties who were interested in genuine consumer protection and sought a clearer, more effective regime.
7. We welcome the Government’s commitment not to ‘gold-plate’ EU law, some of the deregulatory measures in the Enterprise and Regulatory Reform Bill (such as ‘sunset clauses’ on subordinate legislation), plans to simplify the respective remits of the FSA and the OFT, and the current clarification exercises. However, such initiatives failed in the past not only because they were insufficiently ambitious, but also because they were accompanied by continued complicating practices similar as ‘front-running’ and knee-jerk law making (see above) – it was a case of one step forward, three steps back.
8. As the BSA said in 2008, “law-makers, regulators and others should take a joined-up approach when developing fairness arrangements for which they are responsible.” It is interesting to note that the judiciary is increasingly taking such an approach – for instance, a trend is developing for courts to take into account relevant regulatory rules (see eg Rubenstein v HSBC Bank plc  EWCA Civ 1184 and Parker v The National Farmers Union Mutual Insurance Society Ltd  EWHC 2156).
Questions and Answers
9. Because BSA members are engaged in the provision of services, but not goods (mainly chapter 5 in the consultation), we limit ourselves to responding to questions in the consultation about services (mainly chapter 6).
10. The consultation goes on to describe the current law relating to the supply of goods and services, notes that the sale of goods is more comprehensively regulated than the sale of services, and asks –
Q1. Do you agree that all businesses should be subject to the same framework of consumer protection for the sale and supply of goods, services and digital content, or
Do you consider that micro-businesses should be exempt from any or all of the new proposals and remain subject to the current framework?
11. We acknowledge the point made in the consultation that the protections for consumers buying goods are fleshed out better than those for consumers of services. The BSA agrees that this inconsistency should be addressed. However, later in the consultation, the point is made that some service providers are more heavily regulated than others (see paragraph 6.2 on page 83), including financial services firms. Therefore, care needs to be taken to ensure that changes do not conflict with existing requirements upon, or add unreasonable burdens in relation to, these already highly regulated sectors.
12. The BSA agrees with the Government that micro businesses should not be exempt from the requirements. We agree that any such exemption would be potentially confusing for consumers. And, getting back to the consistency point, small financial services firms (such as small building societies and credit unions) are subject to regulation by the FSA.
The Definitions of Consumer and Trader
13. The consultation then considers the possibility of introducing single, consistent definitions of the terms ‘consumer’ and ‘trader’, and asks –
Q2: Do you agree with the Government’s proposal to introduce a single definition of ‘consumer’ and a single definition of ‘trader’?
Do you have any concerns with any aspects of the proposed definitions?
The proposed definitions can be summarised as follows:
Consumer - this would be limited to an individual acting for purposes which are wholly or mainly outside of his or her trade, business, craft or profession; but would not include an individual buying goods at an auction which individuals may attend in person (for the purposes of protections currently subject to this restriction).
Trader – this would be an individual (‘natural person’) or organisation (‘legal person’) whether publicly or privately owned, who is acting – including through any other person acting in their name or on their behalf – for purposes relating to their trade, business, craft or profession in relation to contracts for goods, digital content or services.
14. Again, there could be a consistency issue for financial services and, possibly, for other sectors that are subject to their own regulation. The Financial Services Authority’s definition of a consumer (in its glossary in the FSA Handbook of Rules and Guidance) is “any natural person acting for purposes outside his trade, business or profession”, which appears consistent with the proposal. The same definition is used for complaints to the Financial Ombudsman Service, except that micro enterprises are also included - http://fsahandbook.info/FSA/html/handbook/DISP/2/7.
15. For the reasons explained above, we do not address the questions relating to the sale of goods. Chapter 6 specifically deals with the supply of services. The consultation notes (paragraph 6.24 on page 88) that the only term currently implied by the relevant legislation into a contract of services is that the trader will carry out the service with reasonable care and skill, and asks –
Q25. Do you agree that these are the implied terms which may currently be introduced into consumer contracts for the supply of services?
16. We agree, but it should be noted that consumers have a range of additional protections in relation to financial services. These include –
section 150 Financial Services and Markets Act 2000, which allows a private person to take legal action against a FSA regulated firm that breaches a regulatory rule
a complaint to the Financial Ombudsman Service, which has a range of remedies, including compensation awards
numerous detailed conduct requirements in the FSA’s Handbook of Rules and Guidance; for example, relating to banking, mortgages, insurance, investment activities etc.
17. At paragraph 6.2, the consultation states that “The proposals outlined below will not over-ride sector or service specific regulations which are already in place either as a result of domestic policy or European measures.” We welcome this assurance, but it is also important that any proposals acknowledge the strength of existing consumer protections in different sectors, are complementary to those protections, and do not add unnecessarily to the burden of sectors that are already heavily regulated.
Q26. Do you think the proposals should apply in Scotland with the same effect as they would have in the rest of the UK?
18. We see no reason why not. The consultation makes it clear that the respective positions are already almost identical.
Q27. Do you agree that the remedies for breach of implied terms in consumer contracts are difficult for consumers to predict?
19. From the commentary in the consultation, the statement underlying the question appears to be true – but it is not so for consumers of financial services (see paragraph 16 above).
20. Questions 33 – 43 relate to a number of proposals in the consultation, the key one being the introduction of statutory guarantees. In broad terms, the proposals seem sensible. Again, we would just mention the range of protections that already exist for customers of financial services and ask the Government to take this into account when framing any new protections in order to avert overlap, inconsistency or conflict with the existing provisions. As the exercised progresses, the BSA would be happy to help.