' . — (1) An individual shall, by virtue of and in accordance with schemes under this section. have the right, as against a building society, to have any complaint of his about action taken by the society in relation to a prescribed matter of complaint which affects him in prescribed respects investigated under the scheme.
(2) An individual shall also, by virtue of and in accordance with schemes under this section, have the right, as against any body which is associated with a building society, to have any complaint of his about action taken by that body in relation to a prescribed matter of complaint which affects him in prescribed respects investigated under the scheme.
(3) Every authorised building society shall be a member (and it may be the sole member) of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (1) above in relation to every matter (within its powers) which is for the time being a prescribed matter of complaint.
(4) The obligation imposed by subsection (3) above, in so far as it relates to a prescribed matter of complaint arising out of the exercise of adoptable powers, is to be construed as requiring a society to be a member of a recognised scheme conferring rights in relation to that matter not later than the date at which the alteration of the society's power takes effect.
(5) Every authorised building society shall secure that each of the bodies associated with it is a member of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (2) above in relation to every matter (within the powers of that body) which is for the time being a prescribed matter of complaint.
(6) Schedule (schemes for investigation of complaints) to this Act has effect for the purposes of this section and, in that Schedule—
(7) The Commission, with the consent of the Treasury, may by order vary Part II or Part III of Schedule (Schemes for investigation of complaints) by adding to or deleting from it any provision or by varying any provision for the time being contained in it; and an order under this subsection may make such transitional provision as appears to the Commission to be necessary or expedient.
(8) The Commission shall have the function, in accordance with Schedule (Schemes for investigation of complaints; recognition, accession etc.) of granting recognition of schemes and of withdrawing any recognition it has granted; but recognition does not extend to, and if not required for, provisions in a scheme which are not required to be made in pursuance of Schedule (Schemes for investigation of complaints) to this Act.
(9) The Commission shall have power to do anything which is calculated to facilitate the discharge of its functions under subsection (8) above, or is incidental or conducive to their discharge, but this does not extend to expenditure for the purpose of operating a scheme.
(10) For the purpose of complying with the duty imposed on it by subsection (3) above, a building society may—
(11) A building society may also make or join in making, or accede to, schemes which are not required for the purposes of this section.
(12) The central office shall have the function, in accordance with Schedule (Schemes for investigation of complaints: recognition, accession, etc.) of recording accessions to schemes and of confirming any withdrawal from a scheme.
(13) A building society may withdraw from membership of a scheme but, if the scheme is a recognised scheme, its withdrawal is not effective except in accordance with the applicable provisions of Schedule (Schemes for investigations of complaints: recognition, accession, etc.).
(14) The power to make an order under subsection (7) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(15) In this section, section (Investigation of complaints: supplementary provisions), Schedule (Schemes for investigation of complaints) and Schedule (Schemes for investigations of complaints: recognition, accession, etc.)—
"accede", in relation to a scheme, means assume the obligations and rights of membership and "accession" has a corresponding meaning;
"action" includes any failure to act, and so as regards "exercise" in relation to any power; and "action", in relation to a society, includes action on its behalf by any body associated with it;
"prescribed", in relation to matters of complaint, means prescribed for the time being in Part II of Schedule (Schemes for investigation of complaints) and, in relation to the respects in which a complainant is affected by any action, means prescribed for the time being in Part III of that Schedule as grounds for making action subject to investigation under the scheme; and
"recognition" means recognition of a scheme by the Commission for the purposes of this section.'.—[Sir George Young.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
With this, it will be convenient to take the following:Government new clause 14 — Investigation of complaints: supplementary provisions. Government new clause 15—Settlement of disputes. Government amendments Nos. 4, 5, 251 to 253, 261 and 291.
This is an important new clause which imposes an obligation on societies to belong to an ombudsman scheme in relation to certain of their activities and to enable the commission to recognise schemes for that purpose. The provisions give effect to an undertaking that we gave in Committee to oblige building societies to belong to an approved ombudsman scheme. While voluntary ombudsman arrangements have become more widespread in recent years, and while the Building Societies Association had been planning a scheme for building societies, this is the first compulsory scheme outside the public service.Before coming to the provisions, I want to pay a tribute to my hon. Friends the Members for York (Mr. Gregory) and High Peak (Mr. Hawkins) for the energy and diligence with which they argued the case for a statutory ombudsman. The introduction of the new clauses is due in no small measure to their efforts. New clause 13 contains the obligation for societies to belong to a scheme in respect of the relevant activities and provides for recognition of schemes by the commission. It also gives effect to a new schedule which sets out the criteria that a scheme must satisfy if it is to obtain recognition. Firstly, the scheme must cover some or all of the activities on which there must be recourses to an ombudsman: broadly speaking, savings accounts, whether shares or deposits, services relating to the handling of money and all lending, whether classes 1, 2 or 3. Secondly, the schedule sets out the powers wind' the ombudsman must have to investigate complaints. It makes it clear, however, that his writ does not run to questions purely about a society's commercial judgment about the creditworthiness of a customer, for example, in deciding whether or not to make an advance or to make available a cheque guarantee card or other facilities. It is a fundamental point of principle to the prudent operation of its business that a building society must ultimately reserve the right to make such decisions without the possibility of their being overturned by an outsider. Where there has been maladministration, the ombudsman will be able to ask the society to take the decision again but he will not be able to take the decision for the society. Thirdly, the schedule deals with the powers of the ombudsman to offer redress to complainants. He may require a society to take steps to remedy its actions or to pay compensation up to a maximum of £100,000, as in the voluntary insurance ombudsman scheme. The scheme need not oblige societies to comply, so long as their reasons are spelt out in the annual directors' report and made public in a way laid down by the ombudsman. That is to avoid derogation by statute from the normal rights of a building society before the courts. However, it would be open to the societies voluntarily to join a scheme which offered no such let-out. New clause 14 deals with some supplementary points. It sets out the criteria which the ombudsman must use in determining complaints; provides for his decision to be final if accepted by the complainant, although the society may always seek leave to appeal to the High Court on a point of law arising from his decision; and provides a penalty for non-compliance with the statutory obligation to belong to a scheme. The related new schedule sets out the procedure for recognition of schemes by the commission and for the registry to record their membership. The statutory obligations will be enforced primarily by the criminal penalty for non-compliance, but, as a last resort, the commission may assist in the establishment of a scheme. Those provisions mark a major step forward in the protection of consumers and will help to ensure that building societies continue to observe the high standards in dealing with their customers for which they are justly renowned. I commend them to the House. Amendment No. 253 gives effect to arrangements for the reference of disputes to an arbitrator of the High Court or the commission. They replace part IV of schedule 2 and, if required, I can give a more detailed explanation.
I congratulate the Government on carrying out the express wish of both sides of the Committee. I agree that two Conservative Members suggested establishing an ombudsman for building societies, and that was fully supported by the Opposition.I have one minor query. Some societies are uneasy about new clause 14 and about paragraph 4 of the new schedule listed as amendment No. 251. At first sight it seems that the adjudicator can override contractual agreements between a building society and a complainant. That may well be right in some cases, especially exceptional ones where the society had clearly acted unreasonably, but the clauses seem to be far more complex than ever we imagined they would be in Committee. We imagined the establishment of an ombudsman to be a simple matter. The clauses are legalistic and complex. This may be necessary — I am not complaining—but they seem to be long winded. Societies believe that an adjudicator should intervene if a building society's act is overridingly and clearly unreasonable. However, it is hoped that the ombudsman will not use his powers under the schedule to intervene in minor matters where there is a clear contractual agreement between a complainant and a building society.
I support the Government's new clauses. I heard my hon. Friend the Minister say that this is the first compulsory scheme outside the public sector, and I deplore the fact that he had to make that statement. I am not criticising him, but I am criticising the Building Societies Association, the banks, the insurance companies and a host of other industries concerned with consumers. The furniture industry, for example, has set up a complaints procedure under the Office of Fair Trading. I deeply regret the fact that the building societies have had to be forced into a statutory scheme.As the right hon. Member for Halton (Mr. Oakes) said, the clauses are much more legalistic and lengthy than we expected when we tabled the amendments in Committee, requiring the establishment of an ombudsman for consumer complaints. I regret and deplore the fact that the scheme is so rigid and inflexible, and I hope that other industries in the financial sector and elsewhere which deal with consumers will learn a lesson from this, namely, that it is much better for them to set up their own scheme than to have one imposed upon them.
As a vice-president of the Building Societies Association, I must say that the building societies in no way oppose the estabishment of an ombudsman. For years the association knew that there was to be a Building Societies Bill. The Government wisely listened to the points made in Committee and inserted this clause in the Bill. It has not been forced on the Building Societies Association. The association happily acquiesces in it.
I do not dispute that the building societies accept this need. My point is that other industries, including those in the financial sector, have recognised both the need for an ombudsman and the pressure from consumers for an independent adjudicator to whom they can take complaints, and have set up their own ombudsman scheme. It would have been better if the BSA had recognised that pressure and done something similar, thereby avoiding this long and inflexible scheme, which is not in the interests of consumers to the extent that it could have been had the building societies set up their own scheme at the outset.I congratulate the Minister on having acted in this way, following pressure in Committee.
I echo the remarks of my right hon. Friend the Member for Halton (Mr. Oakes) and the hon. Member for Ludlow (Mr. Cockeram) in welcoming the new clause. The proposal had all-party support in Committee, which may be why the Government agreed to take it up, although it may be that we had an unusually relaxed and friendly Committee. I pay tribute to the Government for being so accommodating.The new clause puts into law an important principle, and I accept my right hon. Friend's point that it is not being forced on the building societies, but that they welcome it. It has been inserted in the Bill because this is the most convenient way of providing for an ombudsman. The Government listened to the arguments and seized this opportunity. The building societies are pioneering a development which should be universal and have enforceable provisions. It should exist for the whole of the banking sector more strongly and effectively than it does, for financial institutions, for insurance companies and, indeed, for newspapers. I know that the Daily Mirror has its ombudsman, probably in Liechtenstein, or somewhere equally convenient, for adjudication purposes. I should like this development to spread over a wide range of industries. Some suspicions have been voiced, especially by solicitors, who are afraid of building societies doing conveyancing, but we shall come to that later. They attempt to give the impression that building societies are huge domineering monopolistic organisations of which people should be afraid. That is not their nature. I do not expect an overwhelming rush of complaints. It is right that building societies should show themselves whiter than white by acceding to the scheme, and I hope that they will accede to a compulsory, binding scheme, not one that allows them to dismiss adjudications in their annual report. It should not be like the local government scheme, which enables local government to reject the ombudsman's recommendations too easily. Consumers need some help and protection. They need a body to identify with and an agency which will protect them with clear, simple, straightforward procedures so that they have confidence to operate in a system which is often intimidating and frightening.
On behalf of the Opposition, I warmly welcome the principle of an ombudsman for building societies. From experience. I know that disputes between building societies and their members have caused much dissatisfaction. I have been involved in several disputes on a constituency basis, and I have followed some others through the newspapers. Some celebrated disputes with building society boards of management reached the press some years ago and obtained publicity. To put it no higher, there was a feeling among some ordinary members of building societies that when a dispute occurred and had to be adjudicated upon, the cards were stacked against the ordinary membership. That being so, it was high time that there was an alteration.I shall keep my remarks about the clauses to a minimum because most of the substantial issues have been discussed. The fact that we have a scheme will give much confidence to the public and will probably underline the increased confidence which investors and members have in building societies. I am pleased that the promise given to the Standing Committee by the Economic Secretary to the Treasury to set up a scheme was fulfilled. He should be personally commended on it. In principle, it covers almost everything; indeed, perhaps it covers too much and a little more should have been left to discretion. However, one can never get these matters right. The scheme covers the fact that an individual has a right to make a complaint on stipulated matters and that a building society must be a member of an approved scheme. The Government have said that a scheme must be compulsory. They lay down basic principles that must be followed and leave the building society movement to construct a scheme. That is as good a way forward as any. The ombudsman principle is well founded in public life. It is a success. There are good precedents in the insurance industry and in banks, and it is a sound way of adjudicating in disputes. I underline the fact that, although the clause was the responsibility of the hon. Member for York (Mr. Gregory), it had substantial all-party support. The hon. Member for High Peak (Mr. Hawkins) was also involved. Such all-party support is the clause's political strength. It has been put firmly on the political map, which is a good thing. The provisions for an ombudsman to adjudicate in disputes are lengthy, detailed and complicated. Could we not have set up a scheme which occupied less print? In the brief which it sent to hon. Members who were interested in arguing the Bill, the Building Societies Association said that the amount of print is such that it may create some awkward legal precedents. Is that the case? What legal scrutiny has it received? Will there be more scrutiny when it reaches the other place so that any rough bits can be made smooth? Although I make those comments, I do not wish to detract from anything that I said at the beginning of my speech. The House welcomes this considerable step forward for the building society movement.
I am grateful for the kind words from hon. Members on both sides of the House about the new clause and the Government's initiative to set up an ombudsman scheme. I shall deal briefly with the points that were raised.On the complexity and length of the schedule, no one is more anxious to keep down the volume of print than my hon. Friend the Economic Secretary and myself, but the complexity is an inevitable result of trying to codify in statute what is a voluntary arrangement. Once the decision is taken to specify that in statute, it becomes unfortunately necessary to do so in some detail, given the criminal sanctions against non-compliance. The right hon. Member for Halton (Mr. Oakes) was worried about the adjudicator overriding the contractual arrangements between the society and the complainant. Clause 14(4) is the let-out clause that I mentioned in my opening remarks. The adjudicator's finding is legally binding if accepted by the complainant, but is subject to the let-out in subsection (4) whereby the society is not obliged to accept the findings so long as it gives the reasons for so doing in the way specified in the new clause and the amendments. We felt obliged to include the let-out clause by which a society may decide not to comply with the ombudsman's decision as long as it explains its reasons publicly, because we did not want to remove the legal rights of a society before the courts. The hon. Member for Great Grimsby (Mr. Mitchell) expressed the hope, with which I agree, that the occasions on which a society would take advantage of the let-out clause would be exceptional. Nothing in the provisions would prevent a society from voluntarily giving up the let-out clause. But there is a point of principle. In requiring societies to belong to a scheme under which they must accept the directions of a third party, we should be depriving them of their rights of law before the courts. Parliament would not wish to do that. It is one thing voluntarily to contract to give up those rights, which is an option, but another to remove them. That is why that clause was included. I hope that the building societies will not seek to abuse the clause or use it lightly. They can expand the scope of the scheme beyond the basic minimun that is already in the Bill. The hon. Member for Ipswich (Mr. Weetch) asked whether the Government would have any further thoughts on the Bill. The Government tabled several hundred amendments between Committee stage and Report, arid I doubt whether the ingenuity and investigative powers of the draftsmen are as yet exhausted, so there may be another opportunity to improve and refine the Bill. In the secure knowledge of all-party support for this fresh initiative, the Government are happy to leave the matter as it is for the time being.
Question put and agreed to.
Clause read a Second time, and added to the Bill.