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A consumer prepayment is money provided to a person or company in advance of receiving goods or services. A prepayment could be for the entire balance, or just a proportion of the total price.

Consumers often make prepayments to businesses, paying in full for goods and services well in advance of receiving them. For example, when buying goods online, paying for flights or theatre tickets, or paying for expensive items in store before taking delivery. Alternatively, consumers may be asked to pay a substantial deposit for major purchases such as home furnishings (e.g. a new sofa) or when ordering a new kitchen or bathroom. With regard to the provision of services for an expensive event (such as Christmas or a wedding), full or part prepayments are popular because they can help consumers budget.

On 13 July 2016, the Law Commission published a report, Consumer Prepayments on Retailer Insolvency (PDF). In this report, the Law Commission   identified two problem sectors for consumer prepayments: deposits paid for furniture or home improvements and gift cards/vouchers. In recent years, high-profile retailer insolvencies have highlighted the lack of protection for consumers making consumer prepayments. As unsecured creditors, consumers are near the bottom of the list for repayment by the insolvency practitioner and may recover little (if anything) of the money they are owed. The Law Commission believes many consumers are unaware of the legal situation.

This briefing considers possible consumer detriment when advance payments are made for goods or services and the retailer becomes insolvent. It also considers the possibility of consumers claiming a refund from their credit or debit card providers. It briefly outlines possible redress for unfair contract terms under Part 2 of the Consumer Rights Act 2015 (CRA 2015). Finally, this paper summarises the case for reform, the Law Commission’s recommendations and the Government’s response, with particular reference to draft legislation on the transfer of ownership of goods.

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