U.K. Eyes Increased Protection for Gift Card Holders in Insolvencies (June 22, 2015)
The U.K. Law Commission is exploring ways to protect gift card holders in the event of retailer insolvency and is requesting comments on its proposals by Sept. 17. The commission—an independent statutory body tasked with reviewing U.K. regulations—has issued a new consultation paper examining several existing and potential options for increasing consumer protection.
The paper, Consumer Prepayments on Retailer Insolvency, notes that the U.K.’s £5.4 billion (US$8.5 billion) gift card and voucher market poses risks for holders of those prepaid instruments, who are considered unsecured creditors by law.
In September 2014, the U.K.’s Department for Business, Innovation and Skills (BIS) tasked the Law Commission with examining existing methods for increasing consumer protections around gift cards. Among the options discussed in the newly released consultation paper are:
- Increased use of trust arrangements. Retailers can put prepayments for gift cards and vouchers into a separate account that would be less affected by insolvency.
- Insurance/bonding arrangements. Underwriters could provide insurance for gift card prepayments in the event of retailer insolvency.
- Increased transparency around chargebacks. Consumers who buy a gift card via credit or debit card often have the option of reversing the charge when the retailer fails to deliver a purchased good or service—which could be considered the case in the event of insolvency.
While all of the above proposals are voluntary—and involve costs and drawbacks—the paper also raises the possibility of new regulation to codify stronger protections. Among the options explored are giving preferential status to a “small and limited category” of consumers who have made significant prepayments shortly before a retailer becomes insolvent—for example, consumers who’ve paid more than £100 (US$158) in prepayments during the three months prior to insolvency. Under the proposal, those consumers’ claims would be paid out ahead of certain other debts.
Interested parties can submit comments by filling out a response form, and sending it via email to: [email protected], or by mail to: Laura Burgoyne, Law Commission, 1st Floor, Tower, Post Point 1.53, 52 Queen Anne’s Gate, London SW1H 9AG. Responses must be received by Sept. 17, 2015.