Christmas Savings Schemes To Be Ring Fenced
After the debacle of the Farepak collapse last year, the government have announced the results of a formal review into the Christmas savings industry. The review was instigated as 150,000 Farepak customers lost an average of £400 each in last years high profile collapse. So why the change?
In effect all Christmas saving scheme companies will need to separate customer money from company money, thereby safe guarding the money saved up by customers throughout the year, In last years collapse of Farepak, customers funds were not ring fenced and were used to fund the company’s expansion into other areas of business. Under the new rules, customer savings will be returned in the event of a collpase of the savings Company.
The fall out sent shock waves through the industry as many low income families had for years depended on such schemes - many were left with no funds to purchase Christmas presents. This resulted in a number of painful headlines for both HBOS (the company’s banker) and Farepak directors who were rumoured to be still collecting funds even though they knew the group was effectively insolvent.
While the collapse itself was a nightmare for many over the Christmas period, it appears that a substantial amount of Ex-Farepak customers looked to “door step lenders†to pay for the Christmas period. Due to the excessive interest rates charged by the lenders, many are still paying back their borrowings to this day.
The Office of Fair Trading are still looking into the circumstances of the collapse of Farepak, and market observers are expecting a raft of new regulations to cover both the savings market, and the Christmas voucher market, both of which are very popular with low income families.
The government have also expressed a view that general retailers should look to make their own Christmas saving schemes more attractive to the public, in order to spread the current dependence on a small group of companies in the sector.
The ring fencing of customer savings should ensure no repeat of the Farepak situation, and the move has been welcomed by consumer groups.
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