HC Deb 28 April 1982 vol 22 cc847-9 3.31 pm
Mr. Robin Squire (Hornchurch)

I beg to move, That leave be given to bring in a Bill to provide for protection for advance payments. This Bill is primarily but not exclusively concerned with what we term mail order, although in practice it extends to all trading arrangements whereby sums are sent prior to the delivery of goods or services promised. In practice, an increasing number of people in Britain are finding that, subsequent to the despatch of that money, the company or firm in question goes into bankruptcy or liquidation. While in theory consumers have a claim for the return of their money, in practice, such is the nature of most liquidations that they receive little or nothing in comparison with the preferred creditors, let alone the fees for the liquidator.

This is a growing abuse. There have been many recent instances such as the spectacular Laker collapse—I speak of the scheduled flights alone. There have been many others involving the purchase of anything from clothes to garden sheds to crash helmets and a whole range of consumer goods. Those are but a few examples. I am sure that right hon. and hon. Members can supplement my examples with others from their own experiences.

The National Federation of Consumer Groups has been tabulating the statistics of the Office of Fair Trading for consumer complaints. In the third quarter of 1981—the latest period for which I have figures available—90 per cent. of the 5,573 people who had made complaints involving failure to deliver goods or services ordered had paid in advance. Moreover, there are now more complaints concerning traders going into liquidation than are recorded for either price comparisons or selling methods. A small paragraph in theDaily Express last February asked those in Britain who had lost money in this way to write in. That produced some two dozen examples involving amounts ranging from £15 to £1,200. That is but the proverbial tip of the iceberg.

A separate exercise also carried out by the federation based on mail order complaints showed that, of 2,641 such complaints between July 1977 and March 1982, 26 per cent. involved the liquidation of a company or the cessation of trading. That survey must show but a tiny fraction of all dissatisfied customers, representing, as it does, only those who have taken the trouble to send in formal complaints to the Advertising Standards Authority.

Existing protection is inadequate. We have the ABTA travel scheme, which hon. Members are well aware of. It involves those travelling under such a scheme paying for the privilege of receiving the normal treatment that they might otherwise expect from commercial undertakings. In addition, we have a voluntary mail order protection scheme, run in conjunction with the Newspaper Publishers Association. However, that affects only classified advertisements. The customer must subsequently identify exactly where and when the advertisement appeared and he must, above all, claim within three months. In practice, each of those hurdles has meant that many people have lost large sums of money.

My Bill will require that every advance payment, prepayment or deposit, however described, paid by a consumer to a company will be placed in a separate account to be known as a "customers' prepayment account". At all times that sum will be held in trust on behalf of the consumer and would not be available as capital, for loan, guarantee or other business purposes for the supplying company. Title in that money should remain in the customer's hands at all times. After, not before, the performance of the contract—the delivery of goods or the supply of services—the firm, individual or company concerned may then withdraw from the customer's account the amount paid by the consumer for that purpose.

In the event of any insolvency or bankruptcy, the sums held by the company shall not only remain the property of the consumer but shall be repaid to him or her one month after the declaration of liquidation or bankruptcy. Any failure to observe that would, as in the case of failure under any other aspect of company law, lead to fine or a prison sentence or both and the disqualification of the directors for the appropriate period.

No new principle is involved here. For many years solicitors have been required to maintain separate client accounts. More recently, the same requirement has been imposed upon estate agents under the Estate Agents Act 1979. Many other trading undertakings today voluntarily follow similar procedures. The BBC holds money from the sale of its microcomputers in a separate trust account—I do not suggest, incidentally that the BBC is in any danger of insolvency or liquidation.

Organisations supporting this measure include the National Federation of Consumer Groups—which has provided me with case histories and much information from its network of 40 voluntary groups—the Federation of Independent Advice Centres, the National Association of Disablement Information and Advice Centres, the Institute of Consumer Advisers and the Scottish Consumer Council.

The Office of Fair Trading has done nothing about lost deposits, although in 1979 its annual report spoke of an intention to deal with prepayments. Existing guidelines cover delay and delivery but do nothing to give protection against losses in insolvency. On 28 March my hon. Friend the Minister for Consumer Affairs addressed the national consumer congress in Guildford. He said: As far as insolvency is concerned, I want to put it on record that I strongly condemn the use of liquidation as a commercial device for the exploitation of consumers, including consumers who have paid in advance for goods or services from traders who then go out of business. Many business men insist on a ROMALPA clause in their contracts which has the effect of reserving title to them in goods sold and delivered unless and until payment is received, thus protecting them should the buyer become insolvent. I submit that what is legitimate business practice in selling to consumers should equally apply to consumers attempting to purchase.

The Cork committee has reported to the Minister on many aspects of liquidation and bankruptcy. I am sure that the House awaits with great interest, and perhaps with trepidation, the publication of its findings. It is certain that they will be involved and that legislation will consequently be delayed.

The problem that I have described is with us now and can be dealt with separately and urgently outside any post-Cork legislation. No other solution could give the consumer the chance to compete effectively with preferred creditors in a liquidation. Every reputable business man should welcome a system that promises honest and fair dealing to the public. Therefore, I seek the leave of the House to bring in the Bill.

Question put and agreed to.

Bill ordered to be brought in by Mr. Robin Squire, Mr. Stephen Dorrell, Mr. Joan Evans, Mr. John Heddle, Mr. Richard Shepherd, Mr. Teddy Taylor, Mr. David Watkins, Mr. John Watson and Mr. Bowen Wells.