Loophole puts computer buyers at risk: Mail-order customers are suffering heavy losses through company liquidations. David Hewson reports

CUSTOMERS of mail-order firms have lost thousands of pounds because of a legal loophole which prevents them claiming compensation if the company they are buying from collapses.

In the last three months, two failed computer companies and a mail-order firm run from a caravan site have taken nearly pounds 1.2m from businesses and individuals for computers that were never delivered. The Independent has discovered that people risk losing all the money they pay upfront unless they use a personal credit card to meet the bill.

Most losses have occurred in the burgeoning market for personal computers, which is now one of the biggest sources of mail-order business. At an average of about pounds 1,000 each, PCs are one of the most expensive items offered on mail order. Now a senior trading standards officer has called for an inquiry by the Office of Fair Trading.

Only private customers who paid by personal credit cards are guaranteed their money back - businesses, which make up the bulk of buyers, have no cover under most mail-order protection schemes. Some computer magazines now fear that the limits of their own protection schemes may be breached by a flood of claims for refunds.

Keith Hale, senior executive officer for the national local authority trading standards liaison body, said that the scale of the losses merited a new inquiry into the mail-order sector. The last OFT last investigation was in 1986 when direct computer sales were rare. This year the industry expects sales of pounds 920m and to account for about 38 per cent of computer sales in the United Kingdom.

Olympic Technology, based in Tottenham Court Road, London, went into liquidation in December after taking more than pounds 500,000 for PCs that it could not deliver. Over 20 months, Olympic used glossy colour advertisements to achieve a turnover estimated at pounds 18m to pounds 20m. The collapse is being investigated by the Fraud Squad and Customs and Excise officials. The company's liquidator, Chris Ashurst, said several million pounds appeared to be missing from the company's accounts.

Robert Stimson, trading standards officer for Camden council, which is handling complaints about the Olympic crash, said that small businesses were suffering because of a gap in the law. 'Very often protection is confined to consumers. Businesses are specifically excluded. Mail-order computer buyers really need to be very careful indeed.'

John Ferrier, fair trading officer for Lothian Regional Council, which is handling complaints after the crash of the Ti'Ko direct-mail firm with more than pounds 500,000 of orders unfulfilled, said that private individuals, sole traders and partners could get protection by paying with a credit card. There is no suggestion of fraud concerning Ti'Ko.

The OFT is considering extending the Consumer Credit Act to apply to small businesses, but has no plans for a new look at the mail-order industry.