The retailers vanish. Will your money follow?

As shops and travel firms go bust, Chiara Cavaglieri looks at the rights of consumers who are left high and dry after paying upfront
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The Independent Online

The recession is cutting a swath through the high street. Every week, it seems, another familiar name disappears into the black hole of administration. With them go thousands of jobs and, for some unlucky consumers, the deposits for goods that they never get.

If a retailer goes into administration, customers who have paid in cash have little assurance that they will receive either the products or a full refund. A lucky few may find that their item is languishing in a warehouse with their name on it, so it is still worth contacting the receiver or insolvency practitioner and registering a claim in writing, with as many details as possible about the purchase. In reality, though, most consumers will lose out – and some quite substantially.

But for credit card-holders, the outlook is much brighter as under Section 75 of the Consumer Credit Act 1974, the card issuer is jointly liable for payments of between £100 and £30,000. This means consumers are entitled to a full refund for all spending on a card that falls within these limits, including any transactions carried out abroad.

Even better news is that shoppers do not need to have paid in full to be eligible for a refund. Even a deposit or small part-payment qualifies, provided the cost of the product is at least £100. "As long as you pay something towards the cost on a credit card, even as little as £1, you are still protected under the Consumer Credit Act," says Monica Jaimini, a legal adviser at consumer group Which?.

This kind of protection is extremely valuable at the moment, with more and more companies falling foul of the economic downturn. So consumers should always consider putting expensive purchases on a credit card, though taking care to pay off the balance before interest starts to accrue.

Where the Section 75 rule lets shoppers down, however, is when people pay for goods and services through a third party such as a travel agent. In such cases, the card issuer may not be considered equally liable as it does not have a direct relationship with the firm providing the goods or services.

The best way to avoid losing out when an airline or hotel goes bust is to book a package holiday protected by the Package Travel, Package Holidays and Package Tours Regulations 1992. These ensure that the tour operator is liable for problems at either of the suppliers, and the customer is therefore protected under a scheme known as the Air Travel Organiser's Licence. Atol-protected holidaymakers will wither receive a refund or a payment to get them home if a company goes bust in the middle of a holiday.

Airlines, however, are not covered by the Atol scheme, meaning there is no guaranteed protection for the increasing number of people who organise their holidays themselves and book flights directly through an airline. This makes it all the more important for consumers who decide to go it alone to take out comprehensive travel insurance that includes cover for scheduled airline failure.

Guarantees are another consideration when making a big-ticket purchase, and for most people, warranties issued by retailers that then go under become worthless and the terms cannot be enforced.

But it is often the case that warran-ties are issued by the manufacturer rather than the retailer, which means it will remain valid (as long as the manufacturer doesn't go to the wall) and consumers can still make a claim.

Consumers have added protection with extended warranties because they are usually backed by an insurance firm. "If it's a free warranty and that manufacturer goes out of business, then your opportunity for redress is limited," says Frank Shepherd at advice service Consumer Direct. "But if it's an extended warranty, the likelihood is that it will be with a separate insurer, in which case your warranty will still be enforceable." However, consumer groups such as Which? have long criticised extended warranties as being expensive and subject to pressured sales techniques by commission-hungry shop staff.

Consumer Direct advises shoppers always to check the wording of any warranty policy, extended or otherwise, carefully. They should ensure they know exactly who has issued the warranty, any exclusions in the cover (there may be many) and how to go about making a claim.

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