Ministry, Case to enhance consumer awareness of prepayment risks

We empathise with consumers who have made prepayments to businesses which have closed down and are unable to recover their money for services not yet consumed ("California Fitness gym closures: Get firms to insure packages over $500" by Mr Christopher Low Kin Siong; "Bar all package deals" by Dr Michael Loh Toon Seng, Forum Online; and "Tighten rules against firms collecting advance payments" by Mr Chua Boon Hou, all published on July 21).

Prepayments are a common business practice where the business collects upfront payment for a package of services to be consumed over a period of time.

The consumer may in turn, enjoy a discount off the total package price.

However, there is an inherent risk associated with prepayments.

In deciding whether to opt for prepayment, the consumer should consider carefully the advantages and potential risks associated with such an arrangement.

There have been a number of suggestions on ways to protect prepayments such as insurance, escrow and trust accounts.

As the nature of businesses and consumer transactions vary widely in practice, mandating such requirements across the board would have a bearing on the operation of businesses and financial institutions. It could impose onerous compliance and administrative costs, which may be passed on to consumers.

It is worth noting that overseas jurisdictions such as Australia and Hong Kong also do not impose broad-based requirements for prepayments to be protected.

There are businesses that provide prepayment protection. Businesses that do so are able to differentiate themselves from their competitors by safeguarding their customers’ interests. 

The majority of CaseTrust accredited businesses provide prepayment protection, particularly those in the spa and wellness sector.

We encourage businesses to be CaseTrust-accredited, and for trade associations to work with CASE to raise CaseTrust accreditation participation among their members.   

Consumer education remains important. We will work with CASE to enhance consumer awareness on the risks involved in prepayments. 

Mrs Cindy Keng
Director, Corporate Communications Division
Ministry of Trade and Industry