What can you do to protect yourself against losing your money when a firm goes bust, asks FIONA REDDAN
WHILE IRELAND may be technically out of recession, economic definitions are of little comfort to the retail and leisure sectors, which continue to suffer from the collapse in consumer spending. Last year, four Irish companies went to the wall every single day, and a similar rate of insolvency is expected for most of 2010, particularly among retailers, hotels and restaurants.
For consumers, this means it is no longer uncommon to plan a visit to a shop or restaurant, only to find out it has closed upon arrival. While it may be just an inconvenience if you had planned to spend there that day, it becomes problematic if you have already paid for goods or services that you will now never receive because the firm has closed down.
You are most at risk of losing your money when paying for goods or services you will not receive until later, such as ordering furniture or buying gift vouchers. If you received gift vouchers in your Christmas stocking, you should get out there and spend them.
When companies go bust, consumers are treated as unsecured creditors. This means they will only get their money back after secured creditors – such as banks – first receive money owed to them. This means that, unless there is some other form of protection, consumers will have to join a long queue of creditors and are likely to lose their money when companies collapse. But are there any lessons to be learned in how you can protect yourself against companies collapsing? And, while the collapse of a financial institution now looks unlikely, what impact will other changes stemming from the banking crisis, such as merging institutions, have on consumers?
TRAVEL
The recent demise of Budget Travel, Ireland’s largest tour operator, demonstrates how precarious the travel industry is, coming as it does on the back of other collapses in the sector such as Slattery Travel and Toolin Travel.
However, unlike other sectors, travel frequently comes with added protection, as most agents are fully licensed and bonded. This means that, in the event of collapse, it is likely that you will be reimbursed the cost of any holiday booked with the agent. It is advisable, then, that you ensure you book your holiday with a fully bonded travel agent.
However, additional services booked with the travel agent, such as day trips, may not be covered.
While you may be entitled to a full refund, you may have to wait some time to get your money back. In the case of Budget Travel, the Commission for Aviation Regulation is dealing with all the claims and, given the large volume it is receiving on a daily basis, progress is slow.
Apart from company closures, consumers are also being affected by airlines pulling back on routes, with less profitable routes getting spiked. Ryanair, for example, recently pulled back on a number of routes from Shannon, including those to Alicante in Spain and Faro in Portugal.
When you have booked a flight with an airline which subsequently cancels the route, you are entitled to a travel credit, which can be used against another booking with the airline, or a full refund. However, in some cases monetary compensation is not enough, as those living in the Shannon region with holiday homes in the areas affected by Ryanair’s retrenchment will attest.
CARS
If you are in the market for a new car and are perhaps considering buying under the recently introduced scrappage scheme, you should bear in mind what will happen if the garage closes following your purchase.
The past year has been an annus horribilis for the Irish motor industry, with 10,000 job losses and the closure of 70 garages.
While the introduction of the scrappage scheme in the budget is a welcome measure, it remains to be seen whether it will stanch the flow of closures.
As such, the provision of after-sales care should be to the fore in your thinking when making a purchase, particularly if buying a second-hand car.
According to the Society of the Irish Motor Industry, if you purchase a new or nearly new car – one that is still under the manufacturer’s warranty – you will be able to take your car to another franchise garage if the garage from which you bought it closes.
If, however, you purchased a used car from a garage and it has since closed, any warranty on the car applies only to that particular business. As the garage has ceased trading, unless a third party is included in the guarantee, it also means the demise of the warranty.
Given that manufacturers’ warranties are now generally only granted for two or three years, the loss of the dealer’s protection may prove expensive if you run into problems with your car.
PROPERTY
A few years ago, the following scenario would have been unheard of. You put down a deposit on a new house or apartment, which you are buying off the plans. When the time comes to move in, you find the developer has gone bust, taking your deposit with them.
Last year, prospective homeowners in Laragan Developments’ Carrickmines Green development in south Dublin found themselves in just such a position when the developer went into examinership. As a result, consumers lost almost all of the €20,000 deposit they had put down in 2006.
While some might argue that they were lucky just to have lost their deposit – considering prices have been slashed at the scheme from about €500,000 to €300,000 – it is still a hefty cash loss for the prospective homeowners. While the HomeBond Insurance Scheme secures deposits up to €100,000, this protection is only offered for 24 months. The potential purchasers in Carrickmines were no longer covered by this. So if you are buying off-plan, it is a good idea to look for completion within 24 months.
On the plus side, developers going to the wall can be good news for consumers, as purchasers in numerous developments around the State, including the Capella Court scheme in Co Kildare, have found. The cost of two-bed apartments in Capella Court was slashed by 66 per cent to just €110,000 in November when the builder went into receivership.
GIFT VOUCHERS
When you can’t think of a gift to get someone, vouchers often seem like the best idea, given the range available. They can be bought for cooking lessons, beauty treatments, hotel breaks, restaurant outings, golf lessons, cinema tickets and so on, but what happens if the provider of the voucher goes bust before the recipient gets to use it?
Voucher holders are treated as unsecured creditors when companies go into liquidation, which means the likelihood of receiving a refund is slim. When Habitat closed its doors here in 2008, its vouchers could no longer be used. Given that vouchers from Habitat were popular as wedding gifts, its demise left thousands of people clutching worthless pieces of paper, which had previously been worth thousands. In this case, consumers got lucky when the National Consumer Agency got on the case and Habitat’s UK parent company allowed consumers to redeem their vouchers with it.
But this is generally not the case. If, for example, you had booked a holiday with the now defunct Budget Travel, you would be due a refund because it was bonded. If, however, you had purchased vouchers from Budget Travel, you would have no right to a refund and would be forced either to claim a chargeback if you had paid by credit card or file a claim with the liquidator and join the queue of unsecured creditors.So if you want to purchase vouchers, remember to do so with your credit card. You should also hedge your bets by buying vouchers that cover all shops in a particular shopping centre, such as Dundrum or Blanchardstown.
FINANCIAL INSTITUTIONS
While the fear of a financial institution collapsing has dissipated, particularly given the Government’s guarantee of the Irish banks, consumers will still have to deal with likely changes in the sector.
Firstly, there is the potential departure of foreign retail banks from the Irish market. Given pronouncements from Bank of Scotland and National Irish Bank’s Danish parent, Danske Bank, that Ireland is no longer a priority, it is possible that some Irish consumers may be left without their bank. In such cases, the Consumer Protection Code states credit institutions must inform affected customers in writing at least three months in advance if it plans to close or move a branch.
If it intends to cease operating, it must give at least two months’ notice and ensure all outstanding business is properly completed.
Of potentially greater impact is the creation of the proposed “third force” in Irish banking, involving the EBS, Irish Nationwide and Permanent TSB. With the first two expected to merge early this year, some 660,000 customers of both institutions will be affected. While it is likely the transition will be relatively seamless, with accounts transferring over automatically to the new institution, consumers will be hit more severely by the resulting decrease in choice and competition in the marketplace.
Why your credit card is also your friend
WHILE YOU may be sick of hearing all the reasons why you shouldn’t use your credit card, in many circumstances it can actually pay to use your flexible friend rather than cash when making purchases – provided, of course, that you can pay your bill off in full every month. When you make a purchase using your credit card, you receive an element of protection if the company from which you are buying a good or service goes bust.
This is known as getting a chargeback. It occurs when you convince your bank of the problem and it reverses the transaction, thereby refunding your credit card account with the appropriate amount.
For example, if you spent €600 on a holiday and the company subsequently went out of business, your credit-card company may reverse the transaction and credit your account with the €600.
It is for this reason that it is generally recommended to pay for goods or services that you will receive at a later date by credit card.
While chargeback rules are set out under the rules of the various card schemes, such as Visa and MasterCard, every credit-card provider will have its own timeframes and conditions attached to its chargeback facility.
Nevertheless, in general, the Irish Payment Services Organisation (Ipso) says there is no reason why you should not receive a full refund in the case of liquidation, provided your claim is genuine.
According to the Financial Regulator, to initiate a chargeback you should contact your card provider as soon as you become aware of the problem.
Give your provider details of the transaction you are disputing and request that they follow it up with the merchant’s card processor.
Sometimes you will need proof of the purchase and proof of the company’s collapse.
For example, Bank of Ireland advises its customers that when buying online or otherwise, they should always keep a copy of their receipt or online confirmation.
Bank of Ireland also sometimes requests customers to obtain a copy of the liquidation notice when companies go bust and do not deliver.
As soon as your claim is processed, Ipso says the refund should be “immediate”.
If you are unhappy with the bank’s decision in the matter, you can make a complaint in the normal manner.
While debit cards such as Laser, Maestro and Visa Debit also have chargeback rights, getting your money back in the case of liquidation may not be as straightforward as doing so with a credit card.
It is for this reason that Ipso recommends that consumers are probably better off paying for high-value purchases with a credit card.
