Government plans new laws to protect Britons who use savings clubs

theguardian.com:

New laws are to be announced this week aimed at protecting the hundreds of thousands of Britons who use savings clubs to put money aside for Christmas or pay for other items in advance.

The government said it would also look at whether there were other sectors posing risks to people who prepay for goods or services, and whether similar protections were needed. Home improvements and weddings are two examples of big-ticket items where people frequently hand over substantial sums in advance.

The move comes 16 years after the collapse of the Christmas savings club Farepak, which left about 100,000 customers unable to access the cash they had put aside, and led to calls for better protection for users of these schemes.

The government said that with households facing rising costs, “now more than ever, families’ hard-earned savings need to be protected”.

Savings clubs allow shoppers to pay for goods and services in instalments throughout the year instead of in one go, and they are often used by people on low incomes.

With many of the clubs, people are saving up for Christmas. Users often receive vouchers that can be spent at specific retailers or via the club’s catalogue.

However, unlike money in current and savings accounts, the cash that people pay into commercial savings clubs is not protected by the UK’s Financial Services Compensation Scheme, the official rescue scheme for customers of financial firms that go bust.

This means that if a savings club goes out of business or customers’ money is lost, they may not be able to get it back.

The Department for Business, Energy and Industrial Strategy said the proposed new laws to be outlined this week would mean that savings clubs must safeguard people’s cash by using insurance or a