New laws to protect shoppers’ money in savings clubs are to be
announced by the government this week.
Savings clubs allow shoppers to pay for goods and services in
instalments throughout the year, instead of in one go.
These savings are currently not protected as they would be in a
bank account by the Financial Services Compensation Scheme.
The new laws mean savings clubs must safeguard shoppers’ savings
by using insurance or trusts, so even if the company goes bust,
shoppers’ money will still be protected.
This will prevent scandals like Farepak, a Christmas savings club
that collapsed in 2006 leaving thousands of customers unable to
pay for Christmas.
Consumer Minister said:
“We’re seeing rising costs caused by global pressures around the
world, which is why we’re taking action worth over £22 billion
this year to help UK families with the cost of energy bills and
ensure people keep more of their money.
“Now more than ever, families’ hard-earned savings need to be
protected. New laws will crack down on dodgy dealers who have no
plans in place to protect shoppers’ savings if their business
goes to the wall. We’ll make sure scandals like Farepak never
happen again, where thousands of families, many on low incomes,
lost all they had saved for Christmas.”
Many UK supermarkets and other businesses have a Christmas
savings club, allowing customers to top up an account throughout
the year and receive products and services in time for Christmas.
Analysis from the Bank of England has shown the average family
spending around £740 extra in December.
The law will apply to Christmas savings clubs and other
prepayment schemes that are forms of savings club.
The Government will also explore if there are other sectors
posing risks to shoppers making prepayments, and whether similar
protections are needed. Shoppers frequently make substantial
prepayments in advance of events or work taking place, leaving
them exposed to risks if the organisation they are doing business
with becomes insolvent.
Examples of things frequently pre-paid for include weddings and
home improvements.
Today’s announcement forms part of a package of measures to help
consumers to be unveiled this week.
Notes to editors:
Consumers often pay for goods and services in advance of
receiving them. If the business that has taken the prepayment
becomes insolvent, consumers may be left without the item they
paid for and uncertainty over how much of their money they will
get back via the insolvency process.
When the Christmas savings club Farepak collapsed in 2006 it owed
£37 million to around 100,000 consumers. The consumers, many of
them on low incomes, had saved an average of £400 with Farepak,
and some had saved £2,000. They waited six years for payment.
Although they eventually obtained around 50 pence in the pound,
70% of this came from compensation funds set up to meet
hardship.
