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greater consumer protection needed following retailer insolvency

19 July 2016

A recent Law Commission report entitled ‘Consumer Prepayments on Retail Insolvency’ has considered the need for greater protection for consumers who lose deposits or gift vouchers when retailers or service providers become insolvent.

When a retailer becomes insolvent, there is a strict hierarchy of creditors to be paid out of any available assets. Consumers are generally classed as unsecured creditors and remain near the bottom of the priority list. Following the collapse of Farepak in 2006, the Treasury Select Committee described current consumer protection as "inadequate and incomplete".

The report recommended that (i) consumers paying cash deposits exceeding £250 within six months prior to a retailer going bust should move up the list to get their money back, and (ii) banks should do more to advise customers about existing protections for card transactions.

The report also considered Christmas clubs and similar savings schemes that deliver goods or services at the end of the savings period rather than returning consumers’ money with interest. Schemes being marketed as suitable for savings must ensure that savers’ funds are adequately protected.

The report, laid before Parliament on 13 July 2016, is a much-needed step towards improving consumer protection. The Government’s response is awaited eagerly.

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