Ministry, Case to enhance consumer awareness of prepayment risks

We empathise with consumers who have made prepayments to businesses which have closed down and are unable to recover their money for services not yet consumed ("California Fitness gym closures: Get firms to insure packages over $500" by Mr Christopher Low Kin Siong; "Bar all package deals" by Dr Michael Loh Toon Seng , Forum Online; and "Tighten rules against firms collecting advance payments" by Mr Chua Boon Hou, all published on July 21).

Prepayments are a common business practice, where the business collects upfront payment for a package of services to be consumed over a period of time. The consumer may, in turn, enjoy a discount off the total package price.

However, there is an inherent risk associated with prepayments.

In deciding whether to opt for prepayment, the consumer should consider carefully the advantages and potential risks associated with such an arrangement.

There have been a number of suggestions on ways to protect prepayments, such as insurance, escrow and trust accounts.

As the nature of businesses and consumer transactions vary widely in practice, mandating such requirements across the board would have a bearing on the operation of businesses and financial institutions. It could impose onerous compliance and administrative costs, which may be passed on to consumers.

It is worth noting that overseas jurisdictions, such as Australia and Hong Kong, also do not impose broad-based requirements for prepayments to be protected.

There are businesses that provide prepayment protection. Those that do so are able to differentiate themselves from their competitors by safeguarding their customers' interests.

There are currently more than 700 CaseTrust accredited retailers which provide prepayment protection, from various sectors such as motoring, renovation and spa and wellness.

We encourage businesses to be CaseTrust-accredited, and for trade associations to work with the Consumers Association of Singapore (Case) on accreditation schemes.

Consumer education also continues to be important. We will work with Case to enhance consumer awareness of the risks involved in prepayments.

Cindy Keng (Mrs)

Director Corporate Communications Division

Ministry of Trade and Industry

A version of this article appeared in the print edition of The Straits Times on August 01, 2016, with the headline 'Ministry, Case to enhance consumer awareness of prepayment risks'. Print Edition | Subscribe