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Consumers ‘need more protection’

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One in ten consumers are not receiving goods or services they pay for in advance, with online sales accounting for 61 per cent of these not-received purchases, according to a new study by a UK watchdog.

The Consumer Focus investigation follows the loss of £38m of customers’ Christmas club savings after the collapse of Farepak and the 100,000 guests still at risk of losing their money after wedding firm Wrapit folded.

The findings revealed that nearly 1.8m consumers have not received an order paid for in advance during the past two years. It found that 24.5m prepayment transactions are made annually by 20m consumers at an average loss of £242. The worst sectors for delivering goods that have been paid for are: electrical goods (15 per cent); books, music or other small entertainment items (15 per cent); clothing and textiles (12 per cent); furniture (11 per cent) and holidays (11 per cent).

“Consumers are losing out in the fight to reclaim money from bankrupt businesses. And the problem looks set to worsen given the dramatic rise in companies going under this year. As with many things during a recession, it’s the poorest who will be hit hardest,” says Steve Brooker, markets expert, Consumer Focus.

The study says retailers and suppliers going bust is a main cause for products not being delivered and that low-income consumers are hit hardest as companies targeting this group are more likely to fail. Low-income consumers were also less likely to use credit cards – the best source of payment protection.

“Better protection of prepayments is in everyone’s interest. Consumers will be reassured that their money is safe, which will encourage spending and help keep a valuable source of credit open to struggling businesses,” says Brooker.

The study claims consumers should also be moved up the list of creditors who receive a share of proceeds when the assets of an insolvent company are sold off. They currently lie “near the bottom of this hierarchy receiving an average of only 3p for every pound spent” – compared to “35p for secured creditors such as banks.”

The study further showed that debit cards were used in nearly half (45 per cent) of all prepayment transactions and Consumer Focus is recommending that all prepayment purchases offer the same statutory payment protection as credit cards. Visa already offers voluntary protection for its debit cards.

In terms of consumers prepaying for goods, Consumer Focus advised customers to: use a credit card, to pay in advance for goods and services costing between £100 and £30,000, as consumers are able to claim back from their credit card company.

And finally, beware of paying in advance for goods and services not covered by a legally required or voluntary scheme – you may lose your money if the company goes bust.

Published in the Financial Times

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Written by Magda M Ali

August 17, 0209 at 9:05 pm

Posted in Published pieces

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