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 30 August 2008 07:22 BST

Farepak review: Consumers 'need protection'

Wednesday, 28 Mar 2007 12:13
Many consumers use savings clubs to collect cash for Christmas

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Action must be taken to prevent last year's collapse of the Farepak Christmas hamper savings scheme happening again, according to a government-commissioned review published today.

Brian Pomeroy, chair of the government's financial inclusion taskforce, led an investigation into the circumstances surrounding the £40 million lost by 150,000 families after Farepak went into administration in October last year.

His review recommends that "secure arrangements are put in place… in order that customers' prepayments are effectively protected" in the future.

The government should launch a publicity campaign to educate consumers about their options in the market, which should itself be examined by the Office of Fair Trading over whether any "competition issues… need to be addressed".

Meanwhile retailers should consider making their Christmas savings schemes more attractive by "giving customers greater protection in the event of the loss or theft of cards".

Responding to the report, ministers said they had already secured agreement from the hamper industry that it would lead an effort to protect the interests of consumers. Meanwhile the OFT is to receive £1 million to conduct an investigation while future plans to tackle financial exclusion have been laid out.

"The collapse of Farepak caused untold stress and financial worry for thousands of families in the lead up to Christmas," consumer minister Ian McCartney said.

"Many of these people were among the most vulnerable consumers, and I am determined that they must never be left unprotected again."

A report by Farepak's administrators earlier this year said that the company had failed to ringfence money provided by savers, with BDO Stoy Hayward predicting that customers were likely to receive just four to five pence back for every pound they had saved with the firm.

The collapse of Farepak, which went into administration along with parent company European Home Retail (EHR) after bankers rejected proposals to rescue the troubled business, is still the subject of a Department of Trade and Industry (DTI) investigation.

Today's review suggested that despite the "lack of security" demonstrated by Farepak's collapse the popularity of hamper schemes would continue because of a desire from low-income families to pay for Christmas in advance rather than going into debt.End of story


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