Voucher rule change doesn't really fix problem for anyone

All I want for Christmas is you. Yes you, a lovely little gift voucher.

Well it's not my idea of romance, either, and Mariah Carey certainly wasn't referring to a gift card in her famous Christmas lyrics, but they are a jolly useful stocking filler.

The problem is, when firms go into liquidation, our money disappears down the plughole. Even when they keep trading, most liquidators still deem vouchers worthless. It has narked consumers for some time.

The Government announced a change to the law this week, protecting 50 per cent of a vouchers value if a firm keeps trading. It might be a short window of opportunity, but you'd assume it's an improvement worth having.

Truth is, it's more like snatching defeat from the jaws of victory.

It's now time to plead with the Minister, Kris Faafoi, to have one more look at this. There's still time and good reason to keep 100 per cent of a voucher's value intact.

The Dick Smithing

Keen to improve consumer protection, the Government formed the Insolvency Working Group in 2015. The Dick Smith debacle of 2016 promptly gave a painful example of a company that continued to trade, with vouchers relegated to loo roll.

The panel of experts consisted of wise owls with expertise in insolvency practice, insolvency law, a credit expert, and a representative of the Official Assignee.

What did they decide?

They decided it was very unfair. Aunty Joan's gift card should remain redeemable if a business continues to trade. They went further and suggested vouchers should have the same protection as laybys (priority above unsecured creditors). Consumer NZ and a couple of law firms supported this idea.

When you ponder long and hard, it's difficult to find any moral basis for a trade creditor of any type, with any level of security to rank higher than Aunty Joan's voucher money. Consumer cash should be a protected species and not given the status of a free line of credit. But back to the real world…

Where did it go wrong?

The Ministry of Business Innovation and Employment decided it didn't like the recommendation. They boldly said they'd prefer consumers continued to get hijacked. Apologies, that was my personal translation of "maintain the status quo".

A long list of liquidators and law firms convinced them the admin costs of dealing with each gift cardholder, would eat into any remaining cash for creditors in a disproportionate way. It's quite a remarkable statement when you peer at it from the consumer angle.

It seems the Minister Kris Faafoi saw both sides of the argument and asked the Ministry to come up with a compromise. They suggested a half-way house, where the fox can eat half the chooks. If the hen house door shuts for good, the fox can stay inside and have the lot.

Submissions were not sought on this alternative, it's just been announced as the decision. Implementation is 2021.

Its easy to see why the Minister would settle for any improvement on the hijacking given a not-so-speedy time frame of 2015 to 2021. It must be driving him as crazy as the rest of us.

The primary goal of the dark-side had little to do with what percentage of our voucher we could spend. It was to keep consumers as unsecured creditors. If the shop door has to shut, it prevents us lining up one by one, submitting claims and creating admin costs. While the shop door remains open, 50 per cent versus 100 per cent of a voucher is not hugely material to creditors.

If the Minister had a last minute re-think and tweaked the law back to 100 per cent of a vouchers value, a sigh of relief will still go up in the glass towers. Their primary goal wasn't this aspect of the law.

The arrogance of equality

The document "Impact Summary, Gift Cards and Vouchers" produced by the Ministry, has a tinge of arrogance to it.

There's a failure to challenge the assumption of consumer equality with unsecured creditors. Creditors have payment history, references and early indicators of financial stress. Their claim includes a profit component. Voucher sales fund creditors in the run-up to an insolvency event and they are whacked with a 100 per cent loss.

The Ministry argues if consumers move up the food chain, they would need to register a claim and suffer a delay in getting their voucher money back, so any law change would do little to promote consumer protection.

It's a rogue sentence that makes you stop and cock your head. Did anyone proofread this document? Another choking moment is when Inland Revenue is called a consumer.

There's a failure to ask the Minister if the government would like to fund a central processing unit where liquidators dump any money, consumers apply online for a refund and after a set time frame, there is a pro-rata payout.

Was there a discussion on larger firms ring-fencing cash from their vouchers? Those with sales over a certain threshold are big enough to operate with auditors confirming money is released as gift cards are used.

Did the Ministry genuinely have a brainstorm on other methods? Is their compromise position actually fair? The dark-side had a major win, keeping us as unsecured creditors when the shop door shuts. Why should they get a second win with a 50 per cent haircut during trading?

It's worthy of a rethink. Ring-fencing cash for big firms and 100 per cent of a vouchers value maintained while shop doors are open would be a better outcome.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.