The Government will consult on new laws to give consumers greater protection on retailer insolvency, but has confirmed that consumer prepayments will not be given preferential status in insolvency.
This was announced on 27 December 2018 in the Government's Response to the Law Commission's July 2016 Report on Consumer Prepayments on Retailer Insolvency.
The Law Commission's Report
The Law Commission's Report recommended that:
- Consumer payments to Christmas and similar savings schemes should be protected so that the promised goods, services or vouchers could be provided even in the event of insolvency (excluding microbusinesses taking £100 or less from any individual consumer);
- The Secretary of State should be given a power to require protection of consumer prepayments in sectors which, in their opinion, pose significant risk to consumers;
- More information should be available to consumers who have prepaid by card about the circumstances in which they may be able to obtain a refund from their credit or debit card provider;
- The Government should consider giving consumer claims preferential status in an insolvency where the consumer has prepaid £250 or more in the 6 months immediately prior to insolvency, has not received the promised goods or services in return, and the prepayment is not protected in any other way; and
- The rules setting out when consumers become owners of goods should be changed to protect consumers who have prepaid for goods that are in a retailer's possession when it enters an insolvency process.
The Government's response
The Government has accepted the recommendation that the Secretary of State be given the power to make regulations requiring protection of consumer prepayments. This power will be exercised where, in the Secretary of State's opinion, the sector poses a particular risk to prepaying customers. Christmas savings clubs and other unregulated savings schemes are a prime example. The Government agrees with the Law Commission that this power is key to protecting these vulnerable consumers.
Ownership of goods
The Government is also supportive of the recommendation that the laws on ownership of goods in business to consumer contracts should be changed and clarified. The Response confirms that it will consult with the Law Commission and other stakeholders with a view to making changes "at suitable moment".
The Law Commission's rather tentative proposal that the insolvency hierarchy be changed to give certain consumers preferential status has been rejected. The Government notes that any such change could have unintended consequences, and that it has decided not to pursue this measure.
Industry guidance about chargebacks
Finally, the Response confirms that greater guidance has already been made available to insolvency practitioners and consumers about the circumstances when a refund may be available from a credit or debit provider. The Insolvency Service issued guidance to insolvency practitioners in the June 2017 edition of Dear IP. The UK Card Association has made an industry code of best practice and consumer guidance about chargebacks available on its website. The Government confirms that it will continue to work with UK Finance and industry stakeholders to monitor this code and guidance.
The Government has committed to working with consumer groups and businesses to clarify the law on ownership of goods in a business to consumer contract. The timescale is unclear. Changes will be made "at a suitable moment" and no indication is given as to when that might be.
The timescales for legislation giving the Secretary of State the power to make regulations requiring protection of consumer prepayments is clearer. We can expect the Government to consult on draft legislation at some point in 2019. This will set out the types of protection and general remedies available to consumers, as well as the proposed methods of enforcement. While it is anticipated that the Trading Standards Service will be primarily responsible for enforcement, other industry bodies may also play a role. The Government's Consumer White Paper will also take into account the Law Commission's Report and is also expected in 2019.