Security for cash in savings clubs as new laws will protect shoppers’ money even if firm goes bust 

Ministers will introduce legislation this week to protect shoppers’ money in savings clubs.

It will prevent scandals like Farepak – a Christmas savings club that collapsed in 2006, owing £37million to around 100,000 consumers. 

Savings clubs allow shoppers to pay for goods in instalments throughout the year, instead of in one go.

These savings are currently not protected by the Financial Services Compensation Scheme. 

But new laws will mean the clubs must safeguard the cash, so even if the company goes bust, shoppers’ money will still be protected.

Consumer Minister Paul Scully, pictured, is set to announce plans that would safeguard money invested in savings clubs by consumers

Consumer minister Paul Scully said: ‘Now more than ever, families’ hard-earned savings need to be protected.

‘New laws will crack down on dodgy dealers who have no plans in place to protect shoppers’ savings if their business goes to the wall.’

He added: ‘We’re seeing rising costs caused by global pressures around the world, which is why we’re taking action worth over £22billion this year to help UK families with the cost of energy bills and ensure people keep more of their money.

‘We’ll make sure scandals like Farepak never happen again, where thousands of families, many on low incomes, lost all they had saved for Christmas.’

Many UK supermarkets and other businesses have a Christmas savings club, allowing customers to top up an account throughout the year and receive products and services in time for Christmas.

Analysis from the Bank of England has shown the average family spending around £740 extra in December.

The law will apply to Christmas savings clubs and other prepayment schemes that are forms of savings club.

Ministers will also explore if there are other sectors posing risks to shoppers making prepayments, and whether similar protections are needed.

When Farepak went bust in 2006 it owed £37million to around 100,000 consumers who had to wait years for partial payment

Shoppers frequently make substantial prepayments in advance of events or work taking place, leaving them exposed to risks if the organisation they are doing business with becomes insolvent.

Examples of things frequently pre-paid for include weddings and home improvements.

When the Christmas savings club Farepak collapsed in 2006 it owed £37million to around 100,000 consumers. 

The consumers, many of them on low incomes, had saved an average of £400 with Farepak, and some had saved £2,000.

They waited six years for payment. Although they eventually obtained around 50 pence in the pound, 70 per cent of this came from compensation funds set up to meet hardship.