Poorest shoppers 'hit hardest' says watchdog

Friday 7th August 2009

One in ten consumers is not getting the goods or services they pay for in advance, a watchdog has said.

Research from Consumer Focus found tougher new measures were needed to protect customers who make pre-payments, with 1.8 million not receiving an order paid for in advance.

The watchdog cites "retailers and suppliers going bust" as the main cause.

The research shows low-income consumers are hit hardest as companies targeting this group are more likely to fail. Low-income consumers were also less likely to use credit cards – the best source of payment protection.

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."

Consumer Focus found on average, £242 was lost when consumers lost money after making a pre-payment, with electrical goods, books, music and small entertainment items among the worst performing sectors.

Debit cards were used in nearly half of all prepayment transactions and Consumer Focus recommends all prepayment purchases offer the same statutory payment protection as credit cards. Visa already offers voluntary protection for its debit cards.

The watchdog said: "Consumers should also be moved up the list of creditors who receive a share of proceeds when the assets of an insolvent company are sold off. They currently lie near the bottom of this hierarchy receiving an average of only 3p for every pound spent – compared to 35p for secured creditors such as banks."

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