New laws will help online shoppers get their money back when firms collapse

New laws will soon protect shoppers from losing out when retailers or businesses collapse, the Government has announced.

Ministers said customers will be guaranteed their money – or the item – as part of a crackdown to protect those who are often left out of pocket when firms enter administration.

It comes amid a fresh wave of retail closures sparked by the coronavirus pandemic, with Cath Kidston, Warehouse, Laura Ashley all collapsing since March.

Under existing rules, when a company collapses, it’s passed onto an administrator, such as Alvarez & Marsal in the case of Cath Kidston.

When this happens, any items paid for in advance, but yet to be sent to the customer, may be used to pay off the firm’s debts.

This can be anything from a new sofa to a wedding dress – and often means the customers loses out financially.

That’s because they become a ‘creditor’, meaning they’re at the bottom of a pile of people owned money – and may eventually only receive a small percentage – if anything – back.

Under existing rules, when a company collapses, it’s passed onto an administrator, such as Deloitte or KPMG

However, under new guidelines, the power will be put in the hands of the customer.

For example, if you buy a sofa online and the chain goes bust, you will receive either the item or a full refund.

This is especially important for those who shop online, as these items are not immediately handed over at the point of sale, and could leave customers in limbo.

The change would apply to scenarios where, for example, a person may have pre-paid for a pair of blinds to be tailored to fit their windows. 

The change in law would be an update on “transfer of ownership” legislation, which dates back to 1893.

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The Law Commission will now consider the recommendations, although it’s already come up with a list of scenarios where the customer would benefit, including:

  • When goods are being labelled with a specific name
  • When goods have been set aside for the customer
  • When goods are being altered
  • When another company is being used to fulfil the order
  • When goods are delivered to a courier for delivery to the customer 

Consumer affairs minister Paul Scully said: “With more and more people prepaying for goods online, it is so important our laws are up to date to reduce the risk of customers losing out if a business unfortunately becomes insolvent.  

“This consultation will look at how the law can be brought into the 21st century, providing clarity for those managing insolvencies and better protection for consumers.”

Law Commissioner, Professor Sarah Green, said: “The current transfer of ownership rules are shrouded in complex language which consumers can find difficult to understand. 

“We believe it is time for the rules to be modernised so that consumers have clarity on their rights of ownership, especially in an insolvency situation.”

How can I get my money back in the meantime?

If you paid for the item using a credit or debit card, you may be able to request a refund from your bank instead

If a retailer you’ve bought something from goes bust, your rights will depend on the payment method you used.

If you paid by credit card and spent more than £100, you can make a claim with your credit provider under  Section 75 of the Consumer Credit Act.

If you paid by debit card, you can make a chargeback claim with your bank – this will be at the bank’s discretion, so the sooner you act, the better.

If you paid online, payment providers like PayPal have provisions in place to protect you if a sale goes wrong.


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