Consumers may be liable to pay in full for undelivered products and services when a company goes into liquidation if the purchases are made on credit card instalments.
Such a scenario came to light when cases were received by the Consumer Council following a spate of shop closures over the past year, where an increasing number of consumers had complained of failure to seek a moratorium or termination on credit card instalment plan for non-delivery of products or services.
During the first six months of 2010, the Consumer Council got a total of 54 complaints on credit card instalment that involved company closure, which is 1.3 times higher than the 23 cases received in the corresponding period of 2009.
Two typical cases serve to illustrate the risks and liabilities that could be faced by consumers.
A consumer was lured into signing a three-year contract on yoga club membership with promises of discounts and "guarantee" of payment termination in case of company closure. Not for long, the yoga club wound up before the consumer had a chance to enjoy the full training course. When the consumer called the bank to stop payment for the remaining two years of instalments, she was rejected on the grounds that the whole transaction amount had been advanced to the yoga club in accordance with the provisions set out in the credit card instalment plan.
In another case, an unfortunate consumer waiting for the delivery of a plasma TV also found himself pumping money into a product never arrived. While pending the delivery of a $17,000 plasma TV which the consumer settled by credit card on a 24-month instalment plan, the company went into liquidation. Upon learning of the news, the consumer immediately registered with the receiver and sent a written request to the card issuer asking for termination of payment, but to his dismay, he was told by the bank to continue the payment while it undertook an investigation.
In view of the cases above, consumers are reminded that they may not be able to revoke the terms and stop payment once signed up for credit card instalment plan. While the terms and conditions may vary for different instalment plans, but in most cases, the plans are actually loan agreements with the credit provider in which consumers are obligated to repay the total amount of money owed irrespective of any disputes they had with the product or service provider. And in that sense, the card issuer would bear no liability in terms of product and service delivery.
To minimize losses, consumers are advised of the following:
- Avoid prepaying a large sum of money.
- Read carefully the terms and conditions before signing the credit card instalment agreement.
- Think twice on what is being told by the salesperson. Joining a credit card installment plan implies obligation by the consumers to repay the loan in full.
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