The best that can be said about the final payout to the creditors of Christmas savings scheme Farepak is that 50p is better than 15p in the pound.
This is a shocking saga and lessons must be learned from it. The savers – predominantly low-paid women – chose to put a small sum aside each week to fund a little Christmas cheer. Their actions exemplified the old-fashioned virtues of thrift and providence. But instead of the "best Christmas ever", as the Farepak publicity promised, the company went out of business and its customers lost all their savings, an average of £400 each. For the 116,400 savers, including 25,000 in Scotland, 2006 was more like the worst Christmas ever.
Because the company dealt in vouchers and Christmas hampers, which are not classed as financial products, customers have none of the protection afforded to bank, building society and credit union customers under the Government's financial services compensation scheme.
As the years dragged on, anger at the shoddy treatment of the Farepak savers grew, especially in the wake of the banking crisis, which saw Farepak's bank, HBOS, running cap-in-hand to the UK Government for a bail-out. As the judge in the recent high court case against the company's directors observed, the bank's "hardball" attitude to the company was largely responsible for its demise.
In particular, Mr Justice Peter Smith questioned the morality of forcing the company to continue collecting deposits, even when it was expected to go bust. Having refused the directors' pleas to put these deposits into a trust, the bank claimed this cash after the company went under, rather than return it to Farepak customers. Savers lost £37 million. A derisory £2m HBOS donation into the Farepak relief fund, when the bank had recovered virtually all the £30m owed to it by Farepak's owners, was a pathetically inadequate response. A further £8m was forthcoming, only after recent high-profile criticism of the moral behaviour of the bank, now part of the Lloyds Banking Group.
Three aspects of this case warrant further attention. First, the Labour Government backed the creation of a new trade body, the Christmas Payment Association, to give such savers more protection, membership is voluntary. Informal savings clubs remain unregulated.
Secondly, it has taken far too long to recompense the Farepak savers, 200 of whom have died waiting for justice. There is something deeply dysfunctional about insolvency arrangements that take six years to resolve a case, racking up fees of £10m for everyone from lawyers to liquidators.
Thirdly, an institution that treated savers in this manner while stuffing the pockets of senior staff with gold behaved in an unacceptable way. Such cases add to the clamour for thoroughgoing reform in British banking. Those in HBOS who presided over this debacle must be brought before the Treasury Select Committee at the earliest opportunity and be made to answer for their actions.
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