Sir Bryan Carsberg, the Director-General of Fair Trading, has called on photocopier dealers and leasing companies to put their house in order or face a reference to the Monopolies and Mergers Commission next year.
Problems spelt out in a damning report from the OFT include contract periods for photocopier leases that are far in excess of the useful life of the machine, obscure and steep charges for servicing the copiers, often increasing at about 15 per cent a year, and huge settlement charges when a customer tries to end the contract early.
A typical mid-range copier might cost pounds 5,000 and have a life expectancy of three years before needing frequent servicing or regularly breaking down. Contracts are in many cases up to nine years with penalties if the customer wants to opt out or change copiers when he or she realises the mistake.
In one case a firm of surveyors was asked for a settlement of pounds 70,000 when ending a contract on a machine costing pounds 5,000. In another a county council was asked for pounds 84,000 for wanting to opt out of a contract where the copier cost pounds 12,000.
Sir Bryan said that one of the worst and most common practices was selling on a cost-per-copy basis, estimating the level of use in advance and charging for more copies than were made.
Customers were sometimes persuaded through hard-sell tactics to sign cost-per-copy contracts with minimum usage clauses for far more copies than were likely to be needed.
The Director-General said the industry had already accepted the need for codes of conduct and self-regulation and welcomed the moves by trade bodies to give their members more guidance. But much more must be done.
'Misrepresentation, obfuscation and deceit are the things that are objectionable and against which I aim to bring my powers to bear,' he added.
The report attacks dealers and lessors of the machines rather than manufacturers. There are thought to be more than 1,000 dealers and the annual value of photocopier contracts in the British market, including service contracts, is estimated to be at least pounds 1bn.
Although it is normally the dealers who arrange contracts, the contracts are between the leasing company and the customer. This can allow leasing firms to deny responsibility when customers allege they have been misled by a dealer into signing contracts.
In addition to raising the spectre of the MMC, Sir Bryan warned that leasing companies which indulged in misleading or deceitful selling practices might be refused consumer credit licences or have their licences revoked.
He has asked for transparency and clarity in dealing with customers, making clear to people the value of the copier and its expected life. He says that the cost of ending contracts early should be pointed out and that any settlement should cover only any genuine loss suffered by the dealer or leasing company as a result.
But Sir Bryan also criticised customers, both businesses and consumers, for carelessness in signing contracts and for showing unwillingness to shop around for the best deal. 'While one is dismayed at the misplaced ingenuity of sellers, one is also shocked at the lack of care on the part of buyers,' he said.
His decision not to refer the industry to the Monopolies and Mergers Commission immediately was attacked by the Campaign to Clean up Copier Contracts. A spokesman said: 'As far as the public is concerned no progress has been made.
'The Office of Fair Trading still allows unfair trading. There is no effective action for the people you (Sir Bryan) are supposed to be protecting.'
The OFT has invited trade bodies in the industry to respond to the report by the end of July.
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