The Government Wants To Protect Your Money

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The government recently announced a raft of proposals for new consumer-protection legislation.  It aims to protect consumers against misuse of prepayment schemes and subscriptions and also from fake reviews.  Here is a quick guide to what you need to know about it.

Safeguarding prepayments

Currently, prepayment schemes, also known as savings clubs, sit outside of the Financial Services Compensation Scheme.  The government proposes to bring them inside it.  This will force schemes to protect savers’ funds by holding them in a trust account and/or insuring them.

At present, it’s not clear if these new rules will extend to gift vouchers.  These are essentially prepayment schemes.  Individual payments into them are likely to be smaller.  When they are consolidated, however, the sums of money involved can be very meaningful.

While this proposal may be reasonable in principle, it will be interesting to see if it works in practice.  The extra regulatory requirements will almost certainly make these schemes more expensive and complicated to run.  This may mean that they end up being unviable.

Promoting transparency with recurring payments

The government wants to force businesses to provide customers with clear subscription contracts.  They also intend to mandate that businesses actively notify customers of key information such as when their subscription is due to renew.

Again, this proposal may sound good in theory.  It is, however, debatable how it will be made to work in practice.  Firstly, it raises the question of how people will be notified.  The obvious answer is email but sending mass email notifications raises two key problems.

One is that some people do not (or cannot) use email.  The other is that notification emails are highly likely to be flagged as spam, particularly if they are sent out in bulk.  In principle, this could be resolved by having customers safelist the sending domain.  In practice, it’s debatable what percentage of customers will actually do this.

Then you have the issue of people entering email addresses incorrectly and/or failing to update them if they change.  Putting all this together means that a lot of email notifications are likely to miss their target.  Merchants could use postal notifications but this increases their cost and there is no guarantee that they will actually be delivered either.

Banning fake reviews

The government wants to make it illegal not just to write a fake review but to pay for a fake review to be written and/or hosted.  Again, this proposal sounds good in theory.  In practice, it’s unclear just how much impact it will have.

To begin with, how would you prove that someone was paid to write a fake review?  Someone who was paid to write a review might have a legitimately positive opinion of a product or service.  You could ban people from paying for reviews but a free product or use of a service might be enough of an inducement to create a positive review.

You could ban people from giving out free samples of their products or services.  This would, however, have potentially massive repercussions.  They would extend way beyond small businesses.

The proposal also raises the question of how the government would apply its rules to sellers based overseas.  Theoretically, you could hold any UK-based service providers (e.g. sales platforms) accountable for fake reviews.  In practice, it’s hard to see how they could do much more than scan for obvious red flags and respond to complaints.

In short

While these proposals may be well-intentioned, it’s far from clear just how effective they would actually be if implemented.  The key rule to take away is that there’s little to beat consumer vigilance.  Think before you spend and keep careful track of your spending.

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