Consumer prepayments on retailer insolvency

What happens to your gift voucher or the deposit you’ve paid when a retailer goes bust? And what if your Christmas savings scheme collapses? Under existing law, your money is unlikely to be protected and you may not get it back.

In our latest consultation we ask whether greater protection is needed for consumers who stand to lose money.

We ask whether more should be done to ensure holders of debit and credit cards are aware of existing protections provided by card-issuers. We seek views on whether – and how – it could be made easier and less expensive for retailers to protect consumers’ deposits through trusts and insurance.

We suggest that retailers who issue vouchers could take voluntary steps to protect consumers, as many already do, and propose that it should be an offence to market schemes as “suitable for savings” without providing adequate protection.

We also seek views on new measures to:

• allow businesses to give voluntary priority to specified creditors
• make it easier for insolvency administrators to provide customers with their goods, and
• protect consumers making substantial deposits.

Law Commissioner Stephen Lewis said:

“We have analysed 20 household names that have entered administration in the last eight years leaving some customers’ prepayments unprotected. Customers can lose significant deposits, and it tends to be the less well-off who suffer most. There is a strong case for offering all prepaying consumers a greater degree of protection. We are proposing a range of practical and affordable measures retailers could choose to take to protect their customers’ prepayments.”

The consultation is open until 17 September.