In the last six months, corresponding to the downturn in the economy, many consumer complaints regarding prepayment coupons and trade practices have been lodged with the Consumer Council. The breakdown of these complaints is as follows:
Dissolution of Maria's Cake Shop
| No. of Complaints: | 2,654 |
| Value represented by the Complaints: | $3,520,174 |
| Total value of unredeemed coupons estimated at the time of closure: | $20M (1) |
KPS Video Shop
| No. of Complaints: | 2,443 |
| Value represented by the Complaints: | $1,568,440 |
Total value of unredeemed coupons estimated prior to "Coupon Burn Campaign" | more than $100M |
Other Prepaid Goods/Services Complaints
| No. of Complaints: | 431 |
| No. of Shops: | 84 |
| Value represented by the Complaints: | $1,144,463 |
Two surveys undertaken by the Consumer Council to measure the magnitude of the consumer exposure to prepayment schemes and coupons reflect far wider latent problems. The surveys reflect an estimated value of $900 million unredeemed coupons in the following industries:
| Cake Shops: | $310M(2) |
| Video Shops: | $170M(2) |
| Remainders, including fitness and beauty centres, subscription of magazines and department stores gift coupons: (details of breakdown to be announced in August issue of 'CHOICE') | $420M(3) |
In all these instances consumers prepay in cash for services and products and the cash is used for financing the business of the operators. In collective terms these represent huge amounts but unlike major creditors such as banks, the consumers do not have access to financial information for assessment of the business, control over the use of money or security for the monies prepaid. Inevitably consumers suffer when a scheme collapses.
The Consumer Council has called public attention to these vulnerabilities and urged caution on the part of the consumer when participating in prepayment schemes or purchasing coupons. Consumers must be particularly wary when high pressure sales tactics are applied. The Council has also urged the government to support measures to protect the integrity of these schemes and thus consumer interest.
While the Council notes with sympathy that many businesses are having trouble making ends meet, the Council wishes to state categorically that it deplores any unilateral variation of rights of prepaid coupon holders by the operators. The recent widely publicised moves of KPS is a case in point. It announced its "Coupon Burn Campaign" and unilaterally reduced the benefits of the consumers. In our view, KPS has breached its contractual obligations to its customers.
Further, it may be that KPS relies on a clause which appears in its membership rules giving itself the right to vary the terms and conditions of membership. In other words, KPS may be saying that it is free to unilaterally make changes regardless of the consequences to its customers, who, it appears, have "no choice" and "no rights". The Council does not consider such clauses, which could be used to extinguish or reduce any cash value or equivalent benefits originally promised to customers, can be relied on. In the Council's view the inclusion and use of such clauses is something that cannot be relied on under the provisions of the Unconscionable Contracts Ordinance.
The Council has urged KPS to provide financial information to enable the consumer to come to a fair and reasonable view of the standing of the company. This we regard as crucial. KPS in calling for consumer support for its business must establish itself as a credible and fair partner. We urge KPS to consider the provision of information seriously, just as if it was providing information to its major lenders. After all, KPS is estimated to have more than $100 million worth of coupons outstanding, immediately prior to the "Coupon Burn Campaign".
It is the Council's view that customers who wish to use up their coupons under the current offer are free to do so. However, the Council - through its Consumer Legal Action Fund - will extend assistance to those who choose not to accept the offer and will, upon expiry of their coupons, mount such action as may be required.
Note:
(1) as reported in the news media.
(2) according to the Council's survey in January 1998.
(3) according to the Council's survey in June 1998.