Review of Prepayment Practices Given Sudden Business Closures and Financial Impact on Consumers

Mr Melvin Yong Yik Chye asked the Minister for Trade and Industry whether the Ministry will conduct a review of the prepayment landscape across the various commercial and retail sectors to better protect consumers in the event of sudden business closure.

The Government empathises with consumers who have lost prepayments due to sudden business closure.

Certain sectors that are susceptible to prepayment losses, like travel agents, private education operators and electricity retailers, are subject to prepayment regulations to provide additional protection to consumers. However, such regulations incur costs to the businesses and consumers. For example, when we require businesses to keep prepayments in an escrow account, they will not be able to use them to pay for their operations and they would require additional working capital and associated costs. These costs are eventually passed on to consumers. Thus, to complement regulations on prepayments, the Government’s broader approach has been to educate consumers to help them make informed decisions and manage prepayment risks. For example, consumers can look out for CASETrust-accredited businesses which have in place measures to safeguard prepayments, such as through the purchase of insurance or insurance bonds. Consumers are also encouraged to opt for progressive payments instead of lump sum payments upfront, especially for large-value purchases such as home renovation. Additionally, consumers who use credit cards to make prepayments may approach their card issuers as soon as possible for information on how to dispute the charge and reverse the transaction. MTI will continue to partner CASE to monitor the prepayments landscape and protect the interests of consumers.