Photo credit: Ernest Chua
With consumers finding themselves at the losing end time and again when businesses fold — most recently, California Fitness — lawyers and Members of Parliament say more safeguards should be put in place for the sale of prepaid packages, though they acknowledged these safeguards should not go as far as to stifle enterprise.
Suggestions they threw up include making prepaid packages come with insurance coverage and capping the value of these packages, which can be written into the Consumer Protection (Fair Trading) Act (CPFTA).
Given that similar measures have been instituted in certain sectors — such as travel, motor and private education — there can be no argument against safeguards for consumers’ pockets on a pervasive scale, they noted.
Since California Fitness’ abrupt closure on Wednesday (July 21), nearly 400 customers have contacted the Consumers Association of Singapore (Case) to seek advice on getting refunds of membership fees paid to the multinational gym chain.
Noting that the episode shows that it is not just fly-by-night operations that put consumers at risk, lawyer Daniel Chia from Morgan Lewis Stamford said regulators must take on a greater role in mitigating the risks of pre-payment, which can run into thousands of dollars.
Avenues such as Case and the Small Claims Tribunal may not provide the most effective recourse while a class action suit may not make economic or logistical sense “if you are a small-time customer with a S$2,000 to S$3,000 claim”.
He added: “Because of that, I think the impetus is for regulators to come in harder on consumer protection.”
Both Mr Chia and Mr Alfred Lim from Quahe Woo & Palmer suggested requiring merchants to offer consumers the option of insuring themselves against unforeseen circumstances such as insolvency, citing how this was implemented in the travel industry in June last year under a licensing condition implemented by the Singapore Tourism Board.
Another way is to cap the value of prepaid packages, said Mr Chia, since merchants can lure customers into shelling out hefty sums through tie-ups with credit cards that offer instalment payments.
“Initially, the consumer may think it is S$100 a month. One year into the contract, the company goes bust. (This is) not a situation where the bank will stop (collecting) payment. That is when I think a lot of consumers will feel very aggrieved because they continue to pay for these services when they cannot use the gym anymore,” he said.
Member of Parliament (Mountbatten) Lim Biow Chuan, who is Case president, said the association has recommended the Ministry of Trade and Industry (MTI) amend the CPFTA to regulate the collection of prepayments as “we see more and more cases of businesses being liquidated after taking large amounts of deposits”.
“We are of the view that (consumer protection) is inadequate. We are seeing too many businesses failing and too many consumers losing their prepayments,” he added.
In response to TODAY’s queries, MTI said it will review the feedback on prepayment protection.
“There is a need to balance providing consumers with adequate protection and the increased cost for businesses, which may ultimately be passed on to consumers,” said the ministry’s spokesperson.
MP Liang Eng Hwa (Holland-Bukit Timah GRC), who chairs the Finance and Trade and Industry Government Parliamentary Committee, said ways to better protect consumers have to be looked at but he stressed that there is no “foolproof approach”.
“We do not want our business regulations to be so tight that it stifles promising enterprises who can genuinely provide value and good service.
”The argument cuts no ice with Mr Lim, who said: “Of course the balance is that it will make running a business more expensive. But why should businesses use consumers’ deposits to finance their business?
”Singapore Management University law professor Gary Low said that if a merchant knows it is heading towards liquidation, it should not hide this from prospective customers.
“(It) usually takes about five to six weeks for an order for winding up to be made, then, clearly, if (the merchant) does not disclose the fact ... it is pushing the risk of liquidation entirely onto (its customers),” said Dr Low. “Firms that are not unduly aggressive in their sales strategies do not fall afoul of the law ... The situation is somewhat different if the firm knows it is a ship taking in water or heading to choppy seas.”
For lawyer Amolat Singh, the maxim of “caveat emptor” is still the rule. He acknowledged, however, that California Fitness, as a reputed company, proved an “exception”.
“People must be mindful these episodes are part and parcel of life, like when accidents happen on the road ... It is hard to prescribe protection on these things ... Suggestions like insurance or security bonds may not guarantee that consumers get the better deal as costs may be passed on to them,” he said.