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The Consumer Council has put forward a package of voluntary measures aimed at reducing the chances of consumers suffering loss in prepayment schemes or purchasing coupons.

  • 1998.10.13

The Consumer Council has put forward a package of voluntary measures aimed at reducing the chances of consumers suffering loss in prepayment schemes or purchasing coupons.

In addition, the Trade and Industry Bureau has requested the Secretary for Justice to consider conducting a study, through the Law Reform Commission, on the feasibility of legislative protection for consumer prepayments.

In a press conference today (October 13), held to review consumer complaints, the Chairperson of the Consumer Council, Ms. Anna WU, welcomed the Government move but called on companies accepting prepayments to respond positively and to swiftly adopt the voluntary measures.

"These are simple steps that require no new legislation," she said. "If adopted they will offer benefits not only to consumers but also to business, as they will increase confidence in prepayment schemes," she urged.

Protection for Consumer Prepayments

The voluntary measures include 4 simple steps which companies could now take:

1. Refrain from overselling coupons

In the long run it makes no sense to sell consumers so many coupons that will take years to use them up. Companies should therefore not structure their discounts or their incentives to staff so that consumers are pressured into buying far more coupons than they are likely to require in the foreseeable future.

2. Include a cautionary reminder

Companies should include a reminder on the coupons that holding them is not risk free. If a company should close there is no scheme in existence to ensure that consumers will receive their money back.

3. Secure guarantee from a third party

A third step, that would make the second step unnecessary, is for the business to secure a guarantee from a third party such as a bank, an insurance company or a trade association that, if it cannot meet its obligations, the money paid for the coupons will be repaid.

4. Act with Prudence

Companies should commit themselves to acting with prudence. If they sell large number of coupons now they must make sure they will have sufficient funds in reserve to carry on the business and meet their obligations even if an unforeseen event reduces their cash flow. For instance, limiting themselves to their core business to avoid using money raised by issuing coupons for non-related activities might be a sound prudent practice.

Welcoming the impending feasibility study on the issue, the Council's Chairperson said that the time is right for a thorough review of the law relating to consumer finance.

Ms. Wu noted that in many other economies there are laws that govern the granting of credit to consumers. The laws cover matters such as the information that must be given to consumers before they sign a contract; the opportunity that consumers must be given to cancel contracts; the limits to the tactics that companies can use to sell credit and to the steps they can take to collect debts.

The Consumer Council therefore proposes that the study should cover not only the situation where the consumer is effectively giving credit to the supplier by prepayment but also the situation where suppliers, together with banks and other lenders, give credit to the consumer. Any such legislation would have to be even-handed in the protection to both parties as receivers and providers of credit.

Promotion of Competition

The Consumer Council has expressed its concern over the manipulation of the financial markets to the detriment of other market participants and the economy as a whole.

Market manipulation is a perfect example demonstrating the need for a comprehensive Competition Law as advocated by the Consumer Council.

Referring to the determined efforts made by the Government to counter the destabilizing effects of manipulation and other unfair practices in the financial markets, Ms. Wu said: "The Council believes that in the financial markets, as in the economy as a whole, the mechanism of the free market requires a level playing field if it is to work efficiently."

The Council is aware of discussions in the investment community on the desirability of legislation to deal with market manipulation through civil sanctions such as fines payable to the Government or disqualification from the market as well as criminal proceedings which would require heavy burden of proof of the intention of the accused to manipulate the market. The Council supports consideration of this approach to the problem of preventing market manipulation.

A similar approach of giving the authorities a choice of routes (civil or criminal) has been used in the UK in financial regulation and it has been used in Canada on trade practices matters.

The Council has written to the Competition Policy Advisory Group (COMPAG) chaired by the Financial Secretary on this matter.

In a related step the Council has also written to the relevant authorities concerned with the management of funds to stress the importance of fund members and those representing their interests being given the opportunity to decide whether stock held by their funds should be available for lending.

"We know that there are conflicting views on whether stock lending should be permitted and this is not an argument on which we feel the Council should express a view, but we do believe that where consumers have a view this should be taken into account," said Ms. Wu, adding the issue of how consumers' wishes are reflected in the decisions of fund managers and other financial intermediaries should be addressed, as well as effective supervision and transparency of stock lending.

Consumers should be made aware of the provisions in trust documents relating to stock lending and of the right that they may have to limit lending.

Steep Rise in Consumer Complaints

The Consumer Council continues to face a dramatic rise in the number of consumer complaints.

In the first 9 months of this year, by the end of September, a total of 18,083 cases was received which already well exceeded the total number of consumer complaints for the whole of last year (11,535) by 57%.

Compared with the corresponding period last year (8,545), the increase was a hefty 112%.

During the period under review, a number of complaint cases has highlighted the following issues :

  • Group complaints regarding purchase of flats
  • Delayed opening and relocation of fitness clubs
  • Problems of billing for Internet services

For a breakdown of the complaint statistics, please refer to the information attached.