New laws to protect consumers who have already paid for products
but not received them when businesses go bust will be considered
by the Government, it was announced today.
Business Secretary confirmed that next year the
Government will consult on laws requiring consumer prepayments to
be protected in particular sectors. This would further strengthen
the Government’s ability to respond quickly to problems involving
consumers who have prepaid for goods or services before a firm
becomes insolvent. Common forms of prepayment include internet
orders, the purchase of gift vouchers and money saved in payment
schemes marketed as forms of saving like Christmas savings clubs.
If a business running a savings club becomes insolvent,
consumers’ money is not protected unlike when it is saved in a
UK-regulated bank account. New laws proposed today would see this
money safeguarded, with legislation requiring businesses to adopt
measures to protect customers against losses - whether that is
through trusts, insurance or other mechanisms.
Business Secretary said:
“When consumers prepay for items through savings clubs it is
reasonable to expect that if something goes wrong, their money
should have some degree of protection. The measures we are
consulting on will give shoppers greater peace of mind.
“It’s all part of how we’re helping make markets fairer for all,
especially the most vulnerable, as part of our modern Industrial
Strategy – with more to come next year through our comprehensive
Consumer White Paper.”
The consultation is part of the Government’s response to a report
by the Law Commission on consumer protections in the event of
insolvencies. The Law Commission had been asked by the Government
to investigate the issue and make recommendations, and their
final report was published in 2016.
Today’s announcement builds on recent measures from the
Government to protect consumers following insolvencies, including
working to increase the proportion of funds that can be paid to
unsecured creditors – who are often consumers – in the event of
insolvencies.
The Government has also worked with the card payment industry,
consumer groups and others to deliver guidance on ‘chargeback’
schemes, in which consumers can ask their credit or debit card
issuer to reclaim prepayments on their behalf following
insolvencies. The guidance, published last year, raises consumer
awareness of the availability of chargeback and clarifies to
insolvency practitioners that they are not favouring consumers
over other creditors if they appropriately publicise the
availability of chargeback.
In April 2018 the Government published its Consumer Green Paper
to examine markets which are not working fairly for consumers.
This includes examining digital markets, where payments are made
before delivery and insolvencies can result in customers not
receiving the goods they have ordered. The findings of the Law
Commission will also be considered as part of the Government’s
Consumer White Paper, to be published next year.
ENDS
Notes to editors
The measures announced today include a commitment from the
Government to work with consumer groups and businesses to clarify
the law so that it is clearer at what point a consumer legally
owns a product. There are cases where a consumer will have paid
for goods which are still in a retailer’s possession when the
retailer enters administration or becomes insolvent, making it
unclear if legal ownership of the goods has been transferred and
can be used to pay creditors or not. By working to clarify the
law, the Government will ensure that consumers get what they are
owed.
