Introduction

1.These explanatory notes relate to the Consumers, Estate Agents and Redress Act, which received Royal Assent on 19 July 2007. They have been prepared by the Department for Business, Enterprise and Regulatory Reform to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.

2.The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.

Summary

3.The Act’s main provisions are as follows:

• to create a new statutory National Consumer Council to replace the existing National Consumer Council (a company limited by guarantee), the Gas and Electricity Consumers Council (“energywatch”)(1) and the Consumer Council for Postal Services (“Postwatch”)(2). The Act also contains a power to dissolve the Consumer Council for Water(3) and transfer its functions to the new body established by the Act.

• to enable the Secretary of State to require service providers in the electricity and gas (in Great Britain), postal services (in the United Kingdom) and water (in England and Wales) sectors to belong to redress schemes to ensure resolution of complaints in those sectors and to award compensation where warranted. The energy and postal services regulators (the Gas and Electricity Markets Authority and the Postal Services Commission respectively) are given a duty to prescribe complaint handling standards which will be binding on regulated providers in Great Britain (and the United Kingdom in relation to postal services).

• to enable the Secretary of State to require estate agents to join an ombudsman scheme and strengthen the regulation of estate agents through measures such as: requiring estate agents to keep records , allowing trading standards officers to inspect those records, and expanding the circumstances in which the Office of Fair Trading (“OFT”) can take regulatory action against estate agents.

• to enable the Secretary of State to make regulations giving individuals similar rights to cancel contracts for goods or services made during a solicited sales visit to their home or workplace as they have in relation to an unsolicited visit.

Background and Overview

Parts 1 and 2

4.The Department of Trade and Industry published the Government’s Consumer Strategy on 21 June 2005, and responded to the earlier consultation on the draft strategy as follows:

“Strengthen and streamline consumer advocacy.

As we set out in our consultation document “Extending Competitive Markets: Empowered Consumers, Successful Business” the Government sees benefits in moving consumer representation in the regulated industries towards a single “National Utilities Consumer Council” model. This remains our view, and we will bring forward further details of possible plans and timetable later this year.”

5.A second consultation was undertaken from January to April 2006, in which options were set out to achieve the objective of strengthening and streamlining consumer advocacy. The Government’s response to this second consultation was published on 17 October 2006, together with a Regulatory Impact Assessment.

6.The Act makes provision for new consumer representation as follows:

The (new) National Consumer Council

7.The Act establishes a “new” National Consumer Council (“the Council”). The Council will initially replace energywatch, Postwatch and the existing National Consumer Council. The Act provides for the abolition of energywatch and Postwatch and enables their assets and liabilities, and those of the existing National Consumer Council, to be transferred to the Council. The existing National Consumer Council will be dissolved under the Companies Acts. The Act also contains a power to dissolve the Consumer Council for Water(4) and transfer its functions, assets and liabilities to the new body established by the Act.

8.The Consumer Panel established by the Financial Services Authority(5) (“the Financial Services Consumer Panel”) and the Consumer Panel established by the Office of Communications(6) (“the OFCOM Consumer Panel”) will be left unchanged, reflecting their particular “regulator-facing” role (i.e. provision of advice to regulators on the consumer interest). The Act provides for a system of cross-appointments seeking to ensure a joined-up approach between the panels and the Council.

9.This Council will have three core functions:

• the representative function,

• the research function, and

• the information function –.

Redress Schemes and Complaint Handling

10.The Act enables the Secretary of State to require regulated providers in the gas and electricity sector (in Great Britain), the postal services sector (in the United Kingdom) and the water sector (in England and Wales) to belong to redress schemes, providing resolution and redress for their consumers. Redress schemes already exist in the financial services and telecommunications sectors and the power in the Act does not relate to those sectors. There is also an existing redress scheme in respect of billing and transfer disputes in the gas and electricity sectors.

11.The Act imposes a duty on the energy and postal services regulators (the Gas and Electricity Markets Authority and the Postal Services Commission respectively) to make regulations to prescribe standards for complaints handling by regulated service providers in the gas, electricity and postal services sectors.

12.The Act does not extend these powers to the water sector because the Secretary of State already has a power to prescribe complaint handling standards in relation to water undertakers and sewerage undertakers in England and Wales under the Water Industry Act 1991 (c. 56).

Consumer Direct

13.The Act provides a power to require licensees in the electricity and gas (Great Britain), postal services (United Kingdom) and water (England and Wales) sectors to contribute towards the costs of expanding Consumer Direct to enable it to operate in relation to those sectors. Consumer Direct is a telephone and on-line consumer advice service, supported by the OFT. The service will be extended to replace the existing consumer information and advice lines provided by energywatch and Postwatch. It may also be extended to replace the existing consumer information and advice lines provided by the Consumer Council in relation to the water sector.

Part 3: Estate Agents

14.The work of estate agents is primarily governed by the Estate Agents Act 1979 (c.38) (the 1979 Act), the Property Misdescriptions Act 1991 (c.29), and Part 5 of the Housing Act 2004 (c.34) (the 2004 Act). All of these extend to the whole of the UK save for the 2004 Act which applies to England and Wales.

15.The system for buying and selling a property in Scotland is quite different from the rest of the UK. For example, a significant proportion of transactions make use of the sealed bid system, and houses are often sold through solicitors. These differences are accommodated by the 1979 Act. Housing in Scotland is a devolved matter, and the Scottish equivalent of the Housing Act 2004 is the Housing (Scotland) Act 2006 (asp1), which contains provisions for Purchaser Information Packs (PIPs) and single surveys.

16.Section 1 of the 1979 Act provides a definition of “estate agency work” rather than defining an “estate agent”. The definition of estate agency work has been utilised for the purposes of this Act.

17.Estate agents are subject to a “negative licensing” system under the 1979 Act. This means that anyone can set up as an estate agent, but the Office of Fair Trading (OFT) can ban estate agents they consider to be unfit to practise.

18.The legislation mentioned above is enforced by the OFT and trading standards officers (TSOs) in Great Britain, and in Northern Ireland by the Northern Ireland Trading Standards Service, which is part of the Department of Enterprise, Trade and Investment.

19.The OFT published a report on the Estate Agency Market in March 2004. The Government published its response to the report in July 2004. The measures in this Act stem from the OFT’s report and the Government’s response.

20.In summary the Act seeks to:

Amendments of the Estate Agents Act 1979

21.At present membership of a redress scheme for estate agents is voluntary. The Government stated in its response to the OFT report that it hoped to amend the Housing Act during its passage to provide a power to require all estate agents to belong to a redress scheme. This proved not to be possible due to the scope of the Housing Act. Therefore the 2004 Act includes provision for the Secretary of State to make an order to require an estate agent to be a member of an approved redress scheme but only for the purposes of complaints relating to Home Information Packs. This Act gives the Secretary of State the power to require all estate agents to belong to a redress scheme for the purposes of all complaints against estate agents by buyers and sellers of residential property. This requirement will be UK wide (the 2004 Act extends only to England and Wales).

22.The OFT’s 2004 report on the estate agents market made some recommendations to improve the regulation of estate agents. The Government supported a number of these recommendations in its response. The other sections in this Act relating to estate agents implement the recommendations from the OFT report set out at points (b) to (d) above.

Part 4: Miscellaneous and General

23.The Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987(7) (‘Doorstep Selling Regulations’) implement Council Directive 85/577/EEC, to protect the consumer in respect of contracts negotiated away from business premises. These Regulations give consumers the right to cancel contracts entered into at home or at a consumer’s workplace where the trader visited the home or workplace other than at the express request of the consumer.

24.In 2004 the Government publicly consulted on recommendations put forward by the OFT to improve the protection of consumers when buying in the home. The Government response to the public consultation was published in September 2006. This Act gives the Secretary of State the power to make provision for consumers to have the right to cancel contracts entered into following solicited visits to the consumer’s home or workplace. These rights are expected to be similar to those consumers currently have for unsolicited visits, under the Doorstep Selling Regulations.

Territorial Extent and Territorial Application

25.This Act extends to England and Wales, Scotland and Northern Ireland, except that:

• sections 13 and 14 (which relate to the gas and electricity sectors) and section 37 extend to England, Wales and Scotland only;

• sections 31 to 33 (which relate to the water sector) extend to England and Wales only;

• section 43 extends to Northern Ireland only to the extent that it applies to the Postal Services Commission and section 47 only to the extent that it relates to regulated providers (within the meaning of Part 2) holding licences under section 2 of the Postal Services Act 2000 (c.26).

Scotland

26.The consumer protection reservation in Section C7 of Schedule 5 of the Scotland Act 1998 (c.46) reserves the regulation of specified areas for the purposes of consumer protection, including the sale and supply of goods and services to consumers. It also reserves the subject matter of a number of specific pieces of consumer law. The existing National Consumer Council exercises both reserved and devolved functions, and it was designated as a cross-border public authority under section 88 of the Scotland Act 1998 by the Scotland Act 1998 (Cross-Border Public Authorities) (Specification) Order 1999(8). The creation of the new Council will also affect devolved matters. Certain of the functions of the new Council may impact on devolved matters, for example where the new Council exercises its functions in the area of food safety. Further, the power to make transfer schemes in relation to the existing National Consumer Council may affect devolved matters.

Wales

27.Certain functions in relation to water are currently exercisable by the National Assembly for Wales. In particular, the National Assembly for Wales has certain functions in relation to the Consumer Council for Water, which may be abolished under the Act. It also has certain functions in relation to water and sewerage undertakers. The Government of Wales Act 2006 (c.32) will transfer these functions to Welsh Ministers. Therefore so far as the future abolition of the Consumer Council for Water is concerned, the Act may affect devolved matters in Wales. Equally, the power to require water and sewerage undertakers in Wales to belong to a redress scheme may affect devolved matters in Wales. The Act provides that both powers are subject to the consent of Welsh Ministers.

Northern Ireland

28.So far as Northern Ireland is concerned, the Act covers consumer protection in relation to postal services only. The regulation of postal services is a reserved matter. The new Council will therefore represent consumers across all sectors in England, Wales and Scotland, and postal services consumers only in Northern Ireland.

Part 1: the National Consumer Council

Section 1: Establishment of the National Consumer Council and its territorial committees

29.Subsection (1) establishes the new National Consumer Council as a body corporate. The Council will be a Non-Departmental Public Body (NDPB). It will be funded by the Secretary of State who will recover some of the Council’s costs from payments made by licensees in the electricity, gas, and postal services sectors. Such costs will be collected from licensees by sectoral regulators. After the Consumer Council for Water has been abolished under section 31, licensees in the water sector may also be required to contribute towards the cost of the Council. Part 5 of Schedule 1 and section 33 make provision in relation to funding.

30.Subsection (2) requires the Council to establish and maintain a committee in Scotland, to be known as the Scottish Consumer Council; a committee for Wales to be known as the Welsh Consumer Council; and a committee for Northern Ireland, to be known as the Northern Ireland Postal Services Committee. These three committees are called “territorial committees” (subsection (3)). The Council’s functions extend to Northern Ireland only to the extent that it represents the interests of consumers of postal services (see the definition of consumer in Northern Ireland, in section 3(2)(b)). This is because the existing General Consumer Council for Northern Ireland already has the function of representing the interests of consumers in Northern Ireland in respect of other matters and will continue to perform that function once the Council has been established.

31.Subsection (4) introduces Schedule 1, which makes further provision about the Council and its territorial committees, and sets out its membership, terms of appointment, procedure, funding and requirements as to its accounts. There is a more detailed explanation of the contents of Schedule 1 in paragraphs 174 to 206 of these Notes.

Section 2: The territorial committees

32.Subsection (1) permits the Scottish Consumer Council, the Welsh Consumer Council, and the Northern Ireland Postal Services Committee (“the territorial committees”) to exercise certain functions of the Council, on behalf of the Council, within their territories.

33.Subsection (2) provides that the Council may impose restrictions or conditions on the way in which the territorial committees exercise their functions, or may give general or specific directions to the territorial committees in relation to the exercise of their functions. It may do this for the purposes of facilitating or improving co-ordination in the carrying out of the Council’s functions.

34.Subsection (3) provides that, despite the powers granted to the territorial committees under subsection (1), the Council may concurrently exercise any of its functions specified in that subsection.

35.Subsection (4) sets out additional purposes of a territorial committee. These are to provide advice and information to the Council about consumer matters in the relevant area for which the committee is established; the provision of advice to the Council about the exercise of its functions to the extent that they affect the relevant area; and such other purposes as the Council may determine.

Section 3: “Consumer” and “consumer matters”

36.Section 3 defines “consumer” and “consumer matters” for the purposes of Part 1. For Great Britain the definition covers every person who purchases uses or receives goods or services supplied in the course of a business. A “consumer” includes an existing and a future one (subsection (3)); “goods” includes interests in land (subsection (4)(b)) and “business” includes a profession and the activities of a government department and public bodies (subsection (4)(c)). For Northern Ireland, the definition is limited to persons who purchase, use or receive “relevant postal services” (as defined in section 41(1)). This is because the Council’s functions in Northern Ireland will be limited to the postal services sector. The General Consumer Council for Northern Ireland will represent the interests of consumers in other sectors (as it does now).

Section 4: “Designated consumers”

37.Section 4 defines “designated consumers”. The concept of “designated consumers” reflects the proposal to merge sectoral consumer bodies with a specific remit (gas, electricity, postal services and, in future, water), into the Council, and the desire to maintain a specific focus on these merged sectors. “Designated consumers” comprise those consumers in specific sectors previously served by a sectoral consumer body. The focus on designated consumers is retained by the requirement on the new Council to set out its priorities in respect of designated consumers in a forward work plan (see section 5 below). Other provisions in section 5 provide for transparency in funding, because businesses in the sectors relevant to “designated consumers” (i.e. electricity, gas and postal services, and possibly in future water) will partly fund the new Council.

38.Subsections (2) and (3) permit the Secretary of State to add, by order, consumers who are provided with water and sewerage services in England and Wales to the list of designated consumers. Before making such an order,, the Secretary of State must consult the Council, Welsh Ministers, and other persons as he thinks appropriate. The Secretary of State can also provide, by order, that classes of consumers are to cease to be “designated consumers”. Before making such an order, the Secretary of State must consult the Council, the Scottish Ministers (except in relation to water consumers) and the Welsh Ministers, and other persons as he thinks appropriate.

Section 5: Forward work programmes

39.The Council is required by section 5 to prepare, publish, and consult on a draft forward work programme for each financial year, and to consider any representations made in response to that consultation. Copies of the draft programme must be sent to the Secretary of State, Scottish Ministers, Welsh Ministers, the OFT, and regulatory bodies that the Council considers might have an interest.

40.This section specifies that the forward work programme must include a statement of priorities in relation to designated consumers and the main activities and projects to be undertaken in respect of them (subsection (1)(a) and (b)). It requires the Council to describe other priorities, activities and projects that it proposes to undertake (subsection (1)(c) and (d)). The Council must provide an estimate of the overall expenditure in respect of the work programme, including an estimate of expenditure in relation to work in respect of designated consumers (subsection (3)(a) and (b)), with separate estimates for each designated sector (subsection (4)).

Section 6: General provision about functions

41.Section 6 sets out some general requirements the Council must comply with when exercising its functions.

42.Subsection (2) requires the Council to have regard to the forward work programme published under section 5.

43.Subsections (4) and (5) require the Council to consider the needs of specified groups of vulnerable consumers, although the Council’s ability to consider consumers’ interests is not limited to these groups.

44.Subsections (6) and (7) require the Council to use its resources efficiently, and to consider whether there is another public body with similar functions to the Council. This is to avoid duplicating work.

45.Subsection (8) requires the Council to exercise its functions in the manner which it considers is best calculated to contribute to the achievement of sustainable development. Functions are defined in section 41 as including the Council’s powers and duties.

46.Subsection (9) provides that the Council is not under an obligation to act for an individual consumer, other than when it is approached by a consumer who is facing disconnection from his or her energy supply. This is because the main role of the Council is to act on behalf of all consumers, as opposed to dealing with individual complaints, which is the proper role of Consumer Direct (the consumer advice service supported by the OFT) and the redress schemes (either those already in existence, or those created under the powers in this Act).

Section 7: Annual Report

47.Section 7 requires the Council to produce and publish an annual report on its activities for each financial year. The report must include details of the progress of projects described in the forward work programme (see section 5); any activities undertaken under section 22 (voluntary activities); and any other matters which the Secretary of State directs the Council to include (subsection (2)(c)). The Council must send copies of the annual report to the Secretary of State (who must lay copies before Parliament) and to the Scottish and Welsh Ministers (subsection (3)); and arrange for the report to be published (subsection 5).

Section 8: The representative function

48.Subsection (1) provides for the first of the Council’s three core functions: to provide advice and information, to make proposals about consumer matters and to represent the views of consumers to the people set out in subsection (2). Consumer matters are defined in section 3.

49.Subsection (2) lists the persons to whom the Council may make representations. These include Ministers, regulators, the European Commission and anyone else the Council considers might have an interest.

Section 9: The research function

50.Section 9 provides for the second of the Council’s core functions: to obtain and keep under review information about consumer matters; information about the views of consumers on such matters; and information of any other description specified in a Secretary of State order..

Section 10: The information function

51.Section 10 sets out the third of the Council’s core functions: to facilitate the dissemination of advice and information to consumers about the Council itself and its functions, and about consumer matters. This means that the Council can either disseminate advice and information itself, or alternatively can work in conjunction with another organisation to disseminate the advice or information. The Secretary of State has power by order to add other matters in respect of which the Council is to exercise this function.

52.Subsection (2) gives the Council the power to make available that advice and information in any way it thinks suitable to bring it to the attention of anyone it thinks will have an interest, and also to work with other organisations to make the information available. Under section 20 (described below) the Council is also required to enter into cooperation arrangements with other bodies, including the Office of Fair Trading, the Financial Services Consumer Panel and the OFCOM Consumer Panel .. Such arrangements include those made to secure the coordination of activities relating to the provision of advice or information to consumers (see section 20(2)).

Powers of investigation

Section 11: General powers of investigation

53.Section 6(9) provides that the Council is not required to act for individual consumers (except in respect of disconnections – see section 13). The Council is able to investigate complaints made by vulnerable consumers (section 12). Section 11 enables the Council to investigate a complaint by a consumer where the Council considers that the subject matter is of general relevance. Subsection (3) explains in what circumstances a complaint will be regarded as raising an issue of “general relevance”. This section also enables the Council to investigate any matter related to a problem which affects consumers generally or consumers of a particular description, whether or not a complaint is made.

Section 12: Investigation of complaints by vulnerable designated consumers

54.Section 12 provides that the Council may investigate a complaint made by a vulnerable designated consumer against a supplier. “Designated consumer” is defined by section 4. Subsection (2) provides that a designated consumer is “vulnerable” if the Council is satisfied it is not reasonable to expect the consumer to pursue the complaint on his or her own behalf. This might apply to persons who are unable to pursue a complaint by reason of a mental or physical disability, a lack of basic skills (such as literacy) or their personal circumstances (such as a recent bereavement). If the Council thinks it is appropriate, in order to help resolve the complaint, it may provide advice to the individual or may make representations to the relevant supplier (subsection (4)).