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Add security into the bargain – The Sunday Times 15/03/2009

There are some great recession deals to be had, but they come with risks, writes Niall Brady

SHOPS are slashing prices to pull in business— but bargain hunters risk getting badly burnt when traders go bust before delivering the goods. Those with money to spend can drive hard bargains as the economy slides further into recession, especially for big ticket purchases such as home appliances, furniture, foreign holidays, cars and consumer electronics.

The catch is customers must usually make hefty down payments, or even pay the full price upfront. When businesses fail, they risk losing their money—as well as the purchases that once looked like bargains. Those holding credit notes and gift vouchers are likely to be out of pocket too. MarkHoman, a senior associate at solicitor Lavelle Coleman, said: “If you pay a cash deposit to a company that goes bust, you’re unlikely to recover any of your money. You’re an unsecured creditor and there is seldom anything left for them in a liquidation after the Revenue Commissioners and banks have been paid off.”

Businesses are failing at an alarming rate. FGS, an accountant, says 753 Irish companies ended up inliquidation, receivership or examinership in 2008 — 37% in the last three months of the year. This was more than double the 370 corporate failures in 2007.

Recent casualties include the furniture retailer Jim Langan, the clothing chain Principles and the entertainment retailer Zavvi. Land of Leather, Chartbusters and Golden Discs have also sought protection from creditors through the examinership process. Last summer, a number of consumers who bought ticket-only deals from the airline XL ended up out of pocket.

Struggling with a 65% slump in sales, the car trade is offering keen deals to coax motorists to part with their cash, especially for luxury models. Land Rover has cut the price of a Discovery by €5,230. Jaguar has reduced the asking price of its newly released XF model by up to €10,200.

Top-end kitchen-makers are also offering large discounts. One Siematic model has been reduced from €75,400 to €38,897. Another model is selling for €26,553 — down from €52,419. Rosie Shortt, a co-founder of Houseworks, which sells Siematic in Ireland, said: “We haven’t had to change our payment terms—we look for a 30% booking deposit— but  who’s to say that won’t change? We’ve been let down by builders, so we’ve a few kitchens up for grabs at special prices. They’re in our warehouse so, if you’re interested, you don’t have to worry about waiting weeks for delivery.”

Here, we look at ways of ensuring that bargain-hunters do not lose out in pursuit of a deal.

How much is a reasonable deposit?

Those ordering items that will take weeks or months to deliver should pay as little as possible upfront. ValueIreland.com, a consumer website, said: “If you’re not getting delivery immediately, try to keep as much of your money as possible in your own pocket rather than allowing a business to hold on to it.

Businesses will be flexible if they want your custom badly enough. Don’t forget that, if they fail, you’ll have to join the back of the queue to get your money back.”

How can I protect a deposit?

Customers paying by Visa or Mastercard can ask their credit card companies for a full refund, known as a chargeback, when businesses go bust before delivering goods or services paid for in advance — whether in part or in full. This protection is not available with cash, cheques or Laser debit cards.

Ann Fitzgerald, the chief executive of the National Consumer Agency, a government watchdog, said: “Credit cards are the only safe way of paying for anything in advance because you can request a chargeback if the business goes bust and the item never arrives.

Remember, though, to pay off your credit card balance in full by the end of the month.”

How long does a chargeback take?

Consumers could be in for a long wait because the credit card companies will want to ensure there is no chance of goods purchased from bankrupt businesses turning up after they have paid refunds. Under Visa and Mastercard rules, chargebacks are made 30 days after the due delivery date. This could mean long delays for those buying furniture, for example, where delivery dates can be many months into the future.

There is a risk that cardholders may never get their money back, especially if credit card companies impose deadlines for requesting chargebacks and these deadlines fall before the due delivery date. Una Dillon, the head of card services at the Irish Payment Services Organisation, said: “Check your card issuer’s terms and conditions. Some may have time limits for requesting a chargeback — 120 days from the date the payment was made, for example. If your delivery date is later than this, you need to talk with your card issuer.”

Bank of Ireland said: “We don’t have a time limit, but customers requesting chargebacks need to be able to prove that the provider has gone bust and that they won’t be receiving the goods they’ve paid for.”

MBNA has a similar policy: “We’re in a position to offer chargebacks only where we have official notification from a liquidator or receiver that customers won’t be getting what they’ve paid for and they won’t be getting their money back.”

Allied Irish Banks said: “Timeframes can vary a lot because we need to be sure the goods don’t turn up after making a chargeback. Customers’ best bet is to talk to us first.”

What about insurance?

Unlike businesses, consumers cannot generally buy credit insurance that protects payments they make in advance. The exceptions are wedding and travel insurance. Premiums for wedding insurance range from €69 to €310, according to a survey in the March issue of Consumer Choice, the magazine of the Consumers’ Association of Ireland. “The harder the recession bites, the more likely it is that a contracted supplier of some important wedding component may go out of business or be unable to meet its obligations,” it said. “We are currently seeing this happen, particularly in the case of pre-booked hotels going bust.”

The level of insurance cover differs widely. John Clear of Proassured Ireland, a specialist broker, said: “There are two types of wedding policy: one covers the deposit if your hotel goes bust, the other merely covers the cost of reorganising the event somewhere else.”

IrishWeddingInsurance.ie, an online broker, charges €149 for a policy that pays out €16,000 towards getting an alternative venue. ClickandInsure.ie, another online broker, is a better bet, even though it is slightly more
expensive. It charges €175 for a policy that pays out up to €20,000 if the original venue goes bust, plus an additional payout of up to €10,000 to cover the extra expense of finding an alternative at short notice.

Holidaymakers who have booked flights and accommodation as part of a package are covered if their tour operators go out of business, because they are bonded by the Commission for Aviation Regulation. Those making their own holiday plans may be covered if they have the right travel insurance.

Accident & General Insurance Services’ premier fairsure policy, sold through travel agents, costs €103 a year for worldwide travel and gives cover up to €3,000 if a travel or accommodation provider becomes insolvent.

Is escrow an option?

Anyone making large advance payments — €5,000 or more — should consider using escrow accounts. This means the cash is held by the trader’s solicitor, who releases it only when goods or services have been deliverd. “If you’re buying furniture or electrical goods, it’s unlikely that retailers will go to the trouble of setting up an escrow account for you,” said Homan.

“If you’re planning a wedding, though, where you are paying for an event that probably won’t happen until next year, you’re entitled to ask that the money is held in escrow. “Hotels will probably resist at first but, with the way the market is going, they should become more amenable. Escrow shouldn’t cost the consumer anything—it’s supplied and paid for by traders.”

Niall Brady

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