New law to protect shoppers' cash in saving clubs

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The schemes, which let shoppers pay for goods and services beforehand in instalments, are particularly popular with people saving for Christmas, weddings and home improvements.

But the cash is not protected by the Financial Services Compensation Scheme because it is in a bank account.

The new laws, which will be announced later this week, will force the clubs to safeguard shoppers’ savings by using insurance or trusts.

This means even if the company goes bust, shoppers’ money will still be protected. Consumer Minister Paul Scully said: “Now more than ever, families’ hard-earned savings need to be protected.

“New laws will crack down on dodgy dealers who have no plans in place to protect shoppers’ savings if their business goes to the wall.”

The changes will prevent scandals like Farepak, a Christmas savings club that collapsed in 2006 leaving thousands of customers unable to pay for their festive fare.

Analysis from the Bank of England shows the average family spends £740 extra in December.

The Government will also explore if there are other sectors posing risks to shoppers making prepayments, and whether similar protections are needed.

Mr Scully said: “We’ll make sure scandals like Farepak never happen again.”



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