Prepayments
12 May 2010: Information on this page relates to policies of the previous government and may not be up to date.
Responding to concerns surrounding consumers’ rights in prepayment transactions made with debit or payment cards, the then Minister for Consumer Affairs wrote to the chief executives of Consumer Focus and Citizens Advice.
In the letter, the minister explained that the Government announced in the Consumer White Paper that it would reassess the regulatory framework for consumer prepayments, taking account of the advice received from the OFT and the Financial Services Authority, following the collapse of Farepak in October 2006, and the recommendations contained within Consumer Focus’s report on the prepayments market, “pay now, pay later” which was published in August 2009.
Subsequently, officials worked with stakeholders from across Government as well as representatives from consumer groups and other interested bodies, to discuss a range of possible options to address the problems caused by consumers losing their prepayments or deposits as a result of business failures or through the practices of rogue traders.
After the conclusion of the detailed discussions, the minister announced on 15 March 2010 that the Government will be taking action in two areas:
1. Targeted interventions in the most vulnerable of sectors:
Statutory protection is already in place in a limited number of risk sectors (such as package travel and funeral plans). However, there are some sectors where there is very limited (or a complete absence) of protection. The Government will therefore work with the most “at risk” sectors and encourage them to adopt prepayment protection of their own.
In doing so, the Government will showcase the best practice of some of the more successful self-regulatory regimes. However, at the same time, the Government will consult on providing the Secretary of State for Business, Innovation and Skills with a reserve power to impose prepayment protection should self-regulation fail, and where there is evidence of a demonstrable need. This could take a number of forms such as compulsory trust accounts or insurance, and the Government will carry out more detailed analysis and consultation on the detail.
2. Payment card redress
Where a company fails to supply goods or services those paying with a credit card may be able to claim back their prepayment from the credit card user under Section 75 of the Consumer Credit Act 1974. There is no similar statutory protection covering debit cards. However, those that shop with Visa debit cards (at the end of 2009, it was estimated that some 80% of debit transactions in the UK were made using a Visa Debit card and this is set to grow in 2010) can claim money back if goods don’t arrive, are other than as ordered, or are defective; or if the debit card has been used fraudulently.
This “chargeback” regime is based on contractual relationships between card issuing banks and those who act for the merchant, however, consumers are largely unaware of when they can claim chargeback on debit cards and how the procedure works. The Government will, therefore, work with Visa, and Visa members, to encourage them to communicate the rights of consumers under “the chargeback regime” more effectively, whilst at the same time encourage other card payment scheme providers, to introduce protections equivalent to that of “Visa chargeback”.
In doing so we, will seek a commitment from Visa that they maintain the current contractual protection offered under the “chargeback”. Furthermore, we will consider the options for debit card regulation, along the lines of the Section 75 provisions, should the voluntary route prove unsuccessful. Again, we will carry out more detailed analysis and consultation on the possible regulatory options.
