Protecting consumers who make prepayments

CASE wants law to require firms collecting prepayments to offer customers protection
By Jessica Lim, Consumer Correspondent, The Straits Times, 21 Oct 2015

When companies like spas and hair salons go bust, customers who bought prepaid packages with them can find themselves stuck with worthless credit.

But now, the Ministry of Trade and Industry (MTI) is looking at requests to tweak the law so that such prepayments can be protected.

MTI also said it would carry out a public consultation to get feedback on the proposed changes to the Consumer Protection (Fair Trading) Act (CPFTA).

The Consumers Association of Singapore (CASE) told The Straits Times that it would like the law amended to make it unlawful for firms to collect prepayments without offering consumers some protection in return - through insurance, for example.

This would give CASE the power to take a court injunction out against any firm that flouts the Act. The company would then have to stop its unfair practice or face charges of contempt of court.

Describing the possible amendment as a "game changer", CASE executive director Seah Seng Choon said the association first proposed the change to the MTI early this year and sent a reminder two weeks back.

Mr Seah reckons that over 80 per cent of businesses here that collect prepayments do not offer protection to customers.

"We want all prepayments to be protected," he said, adding that firms can do so through several methods, including taking out insurance, working with banks to hold funds in escrow or letting parties like EZ-Link act as custodians of prepayments. "If the amendment is made, it will be a game changer because we will have the ability to require the business to put in place such protection," said Mr Seah.

Consumers should not bear the brunt of business failures and firms that cannot protect customers should not collect prepayments, he added.

Currently, 157 spas under CASE's accreditation scheme have insurance. Another 12 have tie-ups with transport smart card EZ-Link, which keeps the money and dispenses it each time a spa session is redeemed.

MTI told The Straits Times: "We note that there have been requests to legislate the requirements to protect prepayments. (We are) considering the matter."

It has not been decided when the public consultation will be called, but such consultations typically take between four and six weeks. The feedback is evaluated when drafting an amendment Bill to be tabled in Parliament.

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Support for proposal but higher cost a concern
By Jessica Lim, The Straits Times, 21 Oct 2015

Higher operating costs and the danger of smaller outfits being sidelined were among early concerns expressed by the industry, if the proposed move to tweak laws to protect consumers who make prepayments does happen.

They were generally supportive of the consumer protection moves, and said firms could buy insurance to protect consumers' prepayments or join a plan where prepayments are held in trust by parties like EZ-Link.

But such moves are costly, said Spa Association Singapore president Nancy Lim. Most of the association's 50 members do not offer such protection schemes. "The cost of buying insurance will be passed down to the consumer in the end, so they will suffer," said Ms Lim, adding that smaller firms may decide not to sell packages altogether. She said small firms may also struggle to find an insurer.

The Consumers Association of Singapore (CASE) had proposed early this year to legislate the requirement to protect prepayments. The Ministry of Trade and Industry said it is considering the matter.

A Straits Times check found that CASE-accredited spas with insurance for prepayments are charged a percentage of each package sold - 1.75 per cent to 2.25 per cent, depending on the amount insured.

Orchard Road Business Association executive director Steven Goh said the proposed move is good for the reputation of the prepayment industry but exceptions could be made for start-ups with no track records.

Mr Chan Chong Beng, chairman of the Workforce Advancement Federation, which helps smaller firms, said it would clean up the industry. But he added that the move would give larger companies an advantage as they tend to have fewer cashflow problems.

CASE figures show that 46 firms shut down abruptly from January to September. This month, Sophia Wedding Collection did so, leaving 76 couples with wedding packages stranded.

Businessman Sem Abdul Aleem, 64, applauded the move. He paid $5,700 to renovate his daughter's room last year. The contractor tore down the walls, then vanished.

But sales executive Amutha Kumaran, 44, is not for the move. "We want to buy a package to save money. So if I have to pay more for insurance, then what's the point?" she asked.