Malcolm ranges over the problems with factoring services and some of the solutions
Debate on the Factoring Bill Malcolm Chisholm (Edinburgh North and Leith) (Lab):
Factoring is an enormous issue in the new-build flats in my constituency, albeit not in the traditional tenements, which in Edinburgh have never had factors.

As I have received the same kind of complaints from a large number of housing developments about a considerable number of factors, I have come to the conclusion that there is a systemic failure related to a lack of regulation and the absence of required standards. At a recent meeting of representatives of many housing developments in my constituency, we set up an online arrangement to share factoring experiences and make the best of the current bad system. When I consulted them and hundreds of other constituents about Patricia Ferguson's bill, there was only support and not one objection. I am therefore not in any doubt about the principles of the bill, and I congratulate Patricia Ferguson on introducing it.

For me, the key issues are, first, getting the detail of the bill right, including the dispute resolution procedure; secondly, having a strong and effective code of conduct; and, thirdly, looking beyond the bill to other actions that may be required, such as amendment of the Title Conditions (Scotland) Act 2003.

At the heart of the bill is a requirement that all factors should adhere to required standards embodied in a statutory code of conduct. In that sense, section 13 is the pivot of the bill, and I am glad that the code of conduct will be consulted on in a separate process. In that sense, passing the bill is part 1 of a two-stage process.

I believe that the core standards that have already been consulted on are a reasonable starting point, but I do not think that we should regard them as the final word. People must be consulted on the detail of the code of conduct, which will be at the heart of the legislation.

The standards must address the common complaints with which so many of us are familiar - the lack of transparency around billing and accounts; poor value for money; failure to arrange repairs; inadequate complaints handling; and the many issues that we have heard about in relation to insurance, such as the large commission that factors often gain from arranging insurance. The bill will succeed or fail in accordance with the quality of the standards and the effectiveness of their enforcement.

Some people have raised fears about the consequences of deregistering a factor, but that must exist as the ultimate sanction. Without it, the bill simply would not work. It is, however, intended to be a last resort, and intermediate steps such as mediation and enforcement notices are of more immediate importance. That is why we must get the dispute resolution procedure right. As we move to stage 2, that will be one of the key points of discussion. I note the minister's enthusiasm for an ombudsman system, but I have doubts as to whether the typical ombudsman function is appropriate for the factoring industry. There is a quote from Mike Dailly at the bottom of page 23 of the committee's report, which I think I have time to read out. He stated:

"The nature of factoring disputes is that there are technical issues about the state of the premises, factually complex issues to resolve and complicated issues of contract law. Given that nature, such disputes lend themselves more to being determined by a quasi-judicial forum such as that proposed in the bill. An ombudsman scheme is not designed for that type of dispute resolution." -[Official Report, Local Government and Communities Committee, 29 September 2010; c 3526.]

Moreover, Patricia Ferguson's suggestion that we use the existing infrastructure of the committee that was set up by the Rent (Scotland) Act 1984 is a useful one. I was responsible for the Housing (Scotland) Act 2006, which used that infrastructure to set up the private rented housing committee, and the reports and research that I have seen in relation to that suggest that it has been successful as a mechanism for not only driving up standards in the private rented sector, but mediation. As mediation will be important for the successful implementation of the bill, the experience of the private rented housing committee in mediation is another plus factor in support of that suggestion for a dispute resolution procedure.

As the committee suggests, switching is important to the debate. As Bob Doris said, if we could get a more effective switching mechanism, that would supplement the standards and mechanisms that are being set up in the bill. There would perhaps develop an effective market in which factors might compete with each other on the basis of quality. The problem at the moment is that it is very difficult to switch.

As I highlighted in the factoring debate in March, when one housing development in my constituency switched it ran into certain problems. That whole area needs to be investigated. I therefore support the committee's recommendation that the Government should commission further research on that complex issue. That will involve looking at the Title Conditions (Scotland) Act 2003. I was pleased to hear the minister say that we may even be able to address some of that in the context of the bill. A further amendment of that act will be required in the next parliamentary session.

We also need to publicise some of the provisions in the 2003 act. At least one housing development in my constituency has it in its title deeds that it cannot change factor until the selling of the last house; yet section 63 of the 2003 act makes it absolutely clear that anyone has the right to change factor after five years and that that provision overrides any individual title conditions. Let us publicise the 2003 act and amend it in due course.....

Malcolm Chisholm (Edinburgh North and Leith) (Lab):
At the recent meeting that I referred to, it seemed that a large number of people were paying 35 per cent commission to factors for their insurance.

Patricia Ferguson:
I would not dispute that. I have heard a variety of figures mentioned. I have also heard about what, in the trade, are loosely called gentlemen's agreements, whereby the factor's brother-in-law paints the close and the transaction is kept in the family. That is the bad side of factoring, but there are very many good factors who work well with the people for whom they are contracted to work.
December 8th 2010 (Column 31313-6, 31327)