The KPS incident has demonstrated beyond doubt the need for effective prevention measures to protect consumers against loss in the event of a default by business accepting consumer prepayments.
The Consumer Council has long been concerned over the security of prepayments by consumers and has advocated and proposed a number of specific measures including legislation to safeguard consumer rights in prepayment schemes.
Substantial consumer interests are involved in this mode of consumption which has grown to be an estimated $900 million business as revealed in two separate surveys of the Council earlier this year.
Without the much needed safeguards, consumers as unsecured creditors in the event of a default are plainly at the mercy of business in financial difficulty to honour their contractual obligations to their customers as evidenced in the KPS incident.
The Council is convinced that prevention is better than cure as the long-term solution to the problem and has therefore issued a voluntary Code of Practice which business accepting consumer prepayments can now adopt to reduce the chance of consumers suffering loss.
These voluntary measures include, among other things, the need for companies to secure a guarantee for refund from a third party such as a bank, an insurance company or a trade association and to act with prudence in ensuring they have sufficient funds in reserve to meet their obligations.
The Council is also encouraged to learn that the Government has suggested to the Secretary for Justice to look into the feasibility of protecting rational consumers within the current legal framework.
It is crucial that business accepting consumer prepayments should now act decisively to shore up consumer confidence.
They owe it to their customers who are providing them a ready source of valuable capital, to take consumers into their confidence. They must operate with greater transparency disclosing financial information that will enable consumers to gauge the standing of the companies in the same way as they would provide information to their major lenders.
They should also adopt the voluntary measures proposed by the Council without delay.
The KPS incident has brought to light the difficulty of obtaining legal redress by consumers. Individually, the amount of prepayment involved is usually such that it is not commensurate with the cost, time and effort consumers have to spend in making claims in the Small Claims Tribunal, not to mention legal action in other Courts with high legal fees and the cost risks.
The Council will reassess these issues in light of the recent experience. It will look into the possibility of the Council being empowered to litigate in its own name on behalf of consumers in certain types of cases affecting important consumer interests.
With KPS going into receivership, the Council will put a hold on its impending litigation against the company. Applicants of Consumer Legal Action Fund will be duly refunded their registration fee of $100 by post.
The Council has notified Ernest & Young the complainants' interest in this matter. The Council will keep the matter in view and liaise with the complainants to provide assistance as necessary. The Council's Hotline for assistance is 2929 2222.
Meanwhile, the Consumer Council has obtained confirmation from KPS' acquiring bank that it will not debit deposits paid with credit cards by KPS members.
Consumers are reminded to always exercise due caution and balance the risks and benefits of prepaying for goods and services.