Saturday, 8 November 2008

Credit cards can save you from collapsing builders

Published Date: 09 November 2008
ABIG surge in the number of businesses and small traders that will go bankrupt this year should set warning lights flashing for consumers.

According to figures published on Friday, the numbers hit by personal insolvency have increased from 1,545 to 4,055. The picture is even worse for companies hit by financial problems: the numbers entering either into receivership or administration ADVERTISEMENTare up four-fold.

This should concern anyone planning a new kitchen, major building works or ordering furniture. Losing the price of a new plasma television would be extremely annoying, but being left without a roof on your house because your builder has gone bust mid-contract would be a disaster.

Self-defence shopping must be a priority. So how can you protect yourself? The most important precaution is to always pay by credit card where possible. Under section 75 of the Consumer Credit Act, if you fail to receive goods or services you have ordered and paid for, your bank must help you pursue your claim, and if unsuccessful compensate you for any loss, provided the item cost between £100 and £30,000.

However, where you have paid a deposit of less than £100 you can still claim redress from the card issuer, provided the total cost was for more than £100. So if you put £50 down on new curtains being run up for £500 by the local seamstress, who then goes bust, you can claim your £50 back.

But bear in mind that you must have made the purchase for your own use. If you pay for four theatre tickets at £30 each for an evening out with friends, and the show and company folds before the performance, the issuer is likely to resist reimbursement on the grounds that you could not possibly have sat in four seats simultaneously yourself. But your credit card provider will only come to your assistance if you have a contract with the retailer or other supplier. Emma Parker of the Financial Ombudsman Service explains: “If you are employing a plumber or electrician, then make sure you get something in writing. We have seen cases where the banks have challenged reimbursement because there was no contract between the customer and the tradesman, and the cardholder had nothing in writing. Even if it is just on a scrap of paper, get them to write something down.”

If you don’t have a credit card, or the retailer or tradesman won’t accept it, Visa debit cards offer a similar protection, provided you make a claim to your bank within 120 days of realising a deal has gone sour.

In fact, the Visa rules are more generous than the consumer credit law demands, in that there is no limit to compensation; a munificence which also extends to Visa credit cards.

Most shops will accept either credit or debit cards, so if you want to order something from one which does not, you need to think very carefully about the likelihood that you will ever receive the item you wish to purchase.

However, many tradesmen may not accept credit or Visa debit cards, in which case extreme care is needed.

Espe Fuentes, a solicitor at consumer group Which?, suggests still paying for anything you can by credit card and on no account parting with money in advance. She argues: “Rather than give your plumber the money to buy the boiler for you, buy it yourself on credit card.”

The difficulty with this approach is that tradesmen can often get discounts of around 20% compared with what the ordinary consumer pays. Fuentes says: “Then you have to weigh up what the discount is worth to you, compared with the risk of parting with your money.”

Insolvency practitioner Beverley Budsworth recommends being very wary of anyone putting you under pressure to pay before work is completed and advocates trusting your instincts to spot danger.

She says: “Anyone who puts you under pressure to put money upfront should set off warning bells. Why are they so desperate for the cash?”

She also suggests using firms which have a long track record: “Firms that have been established for many years will have ridden out booms and busts in the past. Newer firms may not have the experience or resources to ride out difficulties.”

Nick Wood, recovery practitioner at accountants Grant Thornton, warns: “Don’t pay a penny upfront if you can avoid it. Pay only on satisfactory completion of the work.”

If you are embarking on a major building project, he insists you must be ruthless in negotiating staged payments.

“Draw up a schedule of the work, and schedule in payments, but only after each stage has been completed to your satisfaction.”

He also suggests checking out firms on the Companies House register ( This holds reports and accounts filed by limited companies, and can be checked for adverse information. However, this may be of only limited help, as the most up to date information may not yet be filed, although it should flag up serious problems.

Unfortunately, although companies can use credit reference agencies to check us out, consumers cannot use the same system to assess a business they wish to deal with. However, the leading credit reference agency Experian said it was looking into this possible extension of its services in the current climate.

Finally, if you are having new windows fitted or major building work done, it is possible to take out insurance to cover work in progress or any guarantees subsequently issued. For example, Warranty Services ( would charge £30 to protect you against a roofer going bust while carrying out repairs costing £5,000.

Warranty Services operations director Gary McGivern says: “The biggest seller involves double-glazing work where a 10-year guarantee is issued following satisfactory installation. If something goes wrong with the windows six years later, and the firm no longer exists, we will pick up the problem.”

However, it will only pay up if the claim meets its terms, so it is important to read the small print. For example, if a builder simply retires at state pension age, that may not be covered.


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