Consumer Rights and Disputes Insolvency protection for consumer savings schemes
In the Government’s view, consumer savings schemes are not regulated as deposit-takers and many are not subject to any other direct regulation. There is in general currently no legal obligation on these businesses to take steps to protect consumer payments.
	Under insolvency law, when such a business becomes insolvent, its remaining assets must be distributed to creditors according to a strict statutory hierarchy. Most of the money will go to those towards the top of the list, such as employees and secured lenders, leaving very little for unsecured creditors such as consumers. Law Commission analysis, produced for the Government in 2016, which reviewed insolvent retailers found that distributions to unsecured creditors were extremely low. If consumers have to rely on receiving a dividend as an unsecured creditor, the return may barely cover the cost of applying for it.
	Chapter 3 of Part 4 places a legal obligation on traders who enter into a consumer savings scheme contract to protect payments received from consumers under the contract by way of a trust or insurance, so that the consumer may receive the money back in full, in the event of the trader’s insolvency.
	In addition, Part 3 provides for civil enforcement of the relevant provisions of Chapter 3 of Part 4 by authorised enforcers in order to protect the collective interests of consumers.