Paying upfront: the ugly truth

One in ten consumers are not receiving goods or services they pay for in advance, according to Consumer Focus, a consumer campaign group created through the merger of three consumer organisations: energywatch, Postwatch and the National Consumer Council.

The research also reveals that less than half (48%) of those who don’t receive their goods get their money back.

The investigation follows the loss of £38 million of customers’ Christmas club savings after the collapse of Farepak, the 100,000 guests at risk of losing their money after wedding firm Wrapit folded, and 30,000 customers who booked with XL Leisure Group who stand to lose their money. Consumer Focus is now calling for tough new measures to protect consumer prepayments.

The research estimates that over the past two years, 1.8 million consumers have not received an order paid for in advance, with retailers and suppliers going bust being cited as a main cause.

The average loss was £242, with the worst performing sectors being: electrical goods (15%); books, music or other small entertainment items (15%); clothing and textiles (12%); furniture (11%) and holidays (11%).

Consumer Focus is also warning consumers to think carefully about the method of payment they use when pre-paying for goods. The research found that debit cards were used in nearly half (45%) of all prepayment transactions, but most debit cards do not offer the statutory payment protection given by credit cards.

Steve Brooker, markets expert, Consumer Focus, said:

“Consumers are losing out in the fight to reclaim money from bankrupt businesses. And the problem looks set to worsen given the dramatic rise in companies going under this year. As with many things during a recession, it’s the poorest who will be hit hardest.”

“Better protection of prepayments is in everyone’s interest. Consumers will be reassured that their money is safe, which will encourage spending and help keep a valuable source of credit open to struggling businesses.”