Hot on the heels of the second administration of HMV over the Christmas period, the Department for Business, Energy and Industrial Strategy (“BEIS”) has published its response to the Law Commission’s recommendations for improving the protection of consumer prepayments on retailer insolvency. The issue of consumer prepayments, such as payment of deposits for large items or the purchase of gift cards, is an area of increasing scrutiny and concern in current times given the growing number of retailer insolvencies.
By way of reminder, the Law Commission’s key recommendations in its report on consumer prepayments were:
- To introduce regulation of Christmas and similar saving schemes which pose a risk to vulnerable consumers;
- Introducing a general power for the government to require protection for prepayments in sectors that pose a particular risk to consumers;
- Provide further information to consumers about their ability to obtain refunds through existing debit card protection (such as Visa chargeback) and credit card protections (such as under section 75 of the Consumer Credit Act 1974);
- Special priority for creditors in a retailer insolvency who have made prepayments of £250+ by cash, cheque or bank transfer in the six months prior to insolvency; and
- Making changes to the rules on when consumers acquire ownership of goods.
Regulation of Christmas and regular-savings schemes
BEIS welcomed the first recommendation to protect consumer prepayments in Christmas-savings (and similar) schemes which are considered high-risk due to a lack of mandatory regulation and the demographic of consumers who tend to buy in to these schemes. To avoid potentially depriving smaller businesses of working capital, BEIS proposed a carve out for schemes run by businesses taking less than £100 from individuals per year.
Power to require sector-specific regulation
The response agreed that there is a gap in the ability of government to protect vulnerable pre-payment customers in sectors currently without regulation, and such a power would enable government to respond more quickly to emerging consumer problems. However, clear criteria would be needed for enacting the power to satisfy Parliament that such regulation was proportionate in the relevant sector and further consultation with key stakeholders will be required to establish a practical route to implementation.
Provision of information about existing card payment protections
BEIS welcomed this recommendation and noted that the government had commenced work with insolvency practitioners to spread awareness and, alongside the UK Cards Association, in their production of an industry code of best practice and guidance which is now available on their website. BEIS recommended that insolvency practitioners should increasingly provide information to creditors about the card protections that may be available to them in retailer insolvencies and BEIS pledged to continue working alongside key stakeholders to improve awareness. Whilst awareness of credit card protection is growing, creditors remain relatively unaware of the protections available under chargeback, which is a voluntary scheme covering payments made by debit, credit and prepayment cards. Visa, Mastercard and American Express are all members.
Changes to the order of priority of creditors
BEIS rejected this proposal on the basis of the wider political and economic impact that would result from such a change, which could include further calls for changes to priority for other categories of creditor.
Clarification on the laws around transfer of title of goods
Whilst BEIS was keen to explore the clarification of the laws of transfer of ownership to increase consumer protection, it noted that such a change would need to be part of a wider-scale review of the Sale of Good Act 1979 as a whole and that further consultation with stakeholders and the Law Commission would be required. It therefore seems unlikely that such legislative changes will be made in the near future.
Tim Carter
Lucy Trott