Consumers lost $2.37m in 2019 after firms suddenly shut

Consumers lost $2.37 million in prepayments last year, due to the sudden and unexpected closures of businesses ranging from renovation contractors to fitness clubs.

Nearly half of this, or $1.15 million, was the result of the shuttering of at least 15 car dealerships, as well as the non-transfer of car ownership by these dealers.

The Consumers Association of Singapore (Case) called the amount concerning, and warned that the issue of prepayment losses will likely remain a pressing one given the current economic landscape.

More than $174,900 in prepayments have been lost so far this year, Case told The Straits Times.

The car and beauty industries received the highest number of complaints last year, with 1,683 and 1,598 respectively, according to statistics released yesterday.

About four in 10 of the complaints against the car industry related to defective or non-conforming goods, mostly involving pre-owned vehicles.

A third of the complaints against the beauty industry involved pressure sales tactics.

In one instance, Case said, a consumer who visited a beauty salon for eyebrow embroidery at an advertised promotional price of $99 ended up having to fork out more than $2,000.

According to the complaint, salon staff embroidered one eyebrow before informing the customer that she had been given a premium eyebrow embroidery worth $2,280.

The staff allegedly threatened not to complete the other eyebrow unless payment for the premium treatment was made, Case said.

She obtained a refund of $1,800 after Case's intervention.

Before buying a package or putting a down payment, here are some tips from the Consumers Association of Singapore to note.

• Ask if the business offers prepayment protection. CaseTrust-accredited spa and wellness firms, for example, must protect prepayments by way of an insurance bond or an escrow arrangement with EZ-Link.

• Ask about the refund policy. Under consumer protection laws, car dealers are required to inform consumers in writing of the terms of refund before collecting any deposit.

• Use payment methods that offer prepayment protection. Consumers who pay by credit card may apply to their card issuers to recover their prepayments through the chargeback mechanism for non-delivery or defective goods and services. The window to raise such disputes is typically 120 days from the date of transaction.

• Negotiate for progressive payment. For example, with a renovation contract, consumers may request the following: 10 per cent deposit payment upon signing the contract; 80 per cent paid in stages as each step of the renovation work (for example, carpentry, plumbing or painting) is done; and remaining 10 per cent paid 14 days after the satisfactory completion of all works.

• Avoid buying prepaid packages that involve large sums or lengthy contract periods. While such packages typically involve bigger discounts, consumers should weigh the risk of losing their prepayments if the business unexpectedly closes against the amount of savings.

The consumer watchdog received 14,867 complaints last year, down from 16,090 the year before.

About seven in 10 of those negotiated or mediated by Case were resolved, with nearly $2.6 million in cash and in-kind recovered.

At least 427 complaints were related to the loss of prepayments due to sudden business closures, the bulk of which involved the car, beauty, renovation contractor, bridal, and fitness club industries.

While businesses generally collect some form of prepayment prior to the delivery of goods and services, the amounts collected in these industries tend to be substantial as they involve big-ticket items or long-term commitments, Case said.

Losses suffered by 33 consumers who had made prepayments for cars, for example, amounted to $1.15 million after the dealerships went bust or failed to transfer the car ownership after being paid.

In one instance, Case said, a consumer had made full payment of $78,000 for a pre-owned car and was told by the dealer that the car's ownership would be transferred to him within 10 days. It still had not been transferred four months later, when the dealer became insolvent. The sum could not be recovered.

Case said that it will intensify its education efforts on the risks involved with prepayments and how consumers can protect themselves.

It is also engaging government agencies and industry stakeholders to push for targeted prepayment protection measures, it said.

Case president Lim Biow Chuan said: "We are deeply concerned about the amount of losses suffered by consumers due to sudden business closures.

"In view of the current economic landscape and as more businesses are affected, it is likely that this issue will remain a pressing concern for consumers," he said.