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Consumers facing large losses when retailers go bust should be protected

Law Commission

3 min read Partner content

Getting a refund on your cash deposit when a retailer goes bust can be “hit and miss”, according to the Law Commission.


Money paid out in advance for items from sofas to mobile phones and services such as football season tickets and even weddings can be lost if the company you are buying from goes under – especially if you have paid by cash or cheque. In a report published today, the Law Commission is recommending that consumers paying a cash deposit of £250 or over within six months of a retailer going bust should be moved up the priority list when it comes to getting their money back.

“Getting a refund on your deposit depends very much on how you paid, and on commercial decisions made by the accountants dealing with the bankrupt business,” said Stephen Lewis, Law Commissioner for commercial and common law. “It can be a hit-and-miss affair, and it’s often the most vulnerable consumers who lose out.

“The high street has seen a number of big-name retailers go under in the last decade: Comet, HMV, World of Leather, MFI and Habitat, to name a few. It’s a problem that’s not going away and we believe that consumers should have better protection in the more serious cases where larger sums are involved.”

As well as protections for larger cash deposits, the Commission is also recommending that banks should do more to tell their customers about existing protections for card transactions. “Under the ‘chargeback’ scheme, you can get your money back from the bank if you make a purchase using your credit or debit card and the retailer goes bust and doesn’t deliver”, said Stephen Lewis, “but surprisingly few people know about the scheme or how to use it. Banks must make it clear to customers what protections are being offered and how to make a claim. Consumers should be encouraged to use credit and debit cards whenever they can and to contact their bank quickly if things go wrong.”

In preparing its report, Consumer Prepayments on Retailer Insolvency, the Commission has conducted a full review of the law relating to consumer prepayments. It concludes that providing mandatory protection for small losses would be costly and disproportionate but calls for statutory protections in sectors where the risk to prepaying customers is particularly high.

One particular sector identified by the Commission is Christmas clubs and other “savings schemes” that deliver goods or services at the end of the savings period rather than returning your money with interest. When Farepak collapsed in 2006 it owed £37 million to around 100,000 savers – an average of £400 each. Consumers who put money into savings clubs expect the same protections as they would receive from a bank, but these schemes are currently unregulated. The Commission is recommending that schemes marketed as being suitable for savings must make sure their savers’ funds are protected.

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