Farepak: A Disaster Waiting To Happen!

For a group of around 150,000 people, Christmas this year will be one that is filled with tears of disappointment.

For a group of around 150,000 people, Christmas this year will be one that is filled with tears of disappointment rather than tears of joy. That's because, through no fault of their own, Christmas has been ruined following some highly questionable decisions by bosses at a company called Farepak.

These unfortunate savers had been salting away their money in Farepak's savings scheme throughout the year in the belief that they will receive vouchers to purchase Christmas presents. But the £40m of savers' money vanished when Farepak used the proceeds to prop up other parts of the ailing business.

Whether Farepak was right to use the Christmas fund in this way is irrelevant to Farepak savers. What matters is that families who put their trust in Farepak have been badly betrayed. Not only have they been deceived by the company, they have also been dreadfully let down by the Government that allowed Christmas clubs to operate without being regulated.

It is indeed regrettable that it has to take a debacle such as Farepak to highlight the fragility of unregulated savings schemes. This would never have happened had Farepak been compelled to come under the same compensation umbrella as banks, building societies, credit unions and the Post Office -- all of which are regulated.

In this regard, The Motley Fool has always been keen to highlight the need for consumers to ask the right questions about financial products. It is only through proper education that consumers will know to avoid products such as Farepak, which was a disaster waiting to happen.

However, it is reassuring to see that politicians are keen to ensure that another tragedy such as Farepak does not happen again. But this will only happen if they are fully committed to change for the long-term rather than to jump on the bandwagon ahead of the festive season.

Without question a donation to the Farepak Response Fund will help bring a glimmer of joy back into the lives of the people hurt by Farepak's collapse. But companies cannot be expected to bail out consumers when it is the Government that has slipped up. The Government needs to ensure that consumers are protected all the time.