Protecting consumers who make prepayments

SINGAPORE - 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.

This article was first published on Oct 21, 2015.
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