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How to avoid losing a deposit

When we buy certain goods or services, such as when we order furniture or engage someone to do a specific job for us, most companies we are doing business with will ask us for a deposit.

There could be problems with the actual order and if this happens, our strength very often depends on how much money we still owe the trader

The main reason companies ask for a deposit is to protect them from losing their money should we change our mind or decide to go elsewhere.

By asking for a deposit, companies ensure there is a binding commitment from both sides. Once we place an order and pay a deposit, we have made a legally binding contract to purchase the goods or services.

So, what happens if we change our mind after paying a deposit? What happens to the deposit? Unless there is a specific clause in the contract of sale allowing us a refund of our deposit, then the deposit is lost.

If we find ourselves in such a situation, it will be at the discretion of the trader whether or not we are refunded our deposit. The only situation where, legally, we are entitled to claim our deposit is when traders do not honour their part of the agreement.

Traders sometimes decide out of good will to refund deposits, especially after considering why consumers have opted to cancel the order.

However, most traders decide to keep deposits as compensation for the time wasted and for the ‘broken’ deal.

Deposits are sometimes also kept because traders have already spent the sum on ordered goods.

There are other situations where­by a deposit could be lost, such as when a seller goes out of business. If this happens, we may find it difficult to get the goods or our money back.

In such a situation, the seller usually owes money to a number of people, so our claim would be one of many. There are rules for priority to be given to the various debts in the case of a business going into liquidation, and the consumer is low on the list.

To avoid losing money on deposits, we need to take a number of precautions.

Situations whereby we change our mind can be avoided if we are sure of our purchase before placing a deposit.

We should shop around, look out for the best deals and only accept to pay a deposit if totally convinced of our purchase.

Once we are certain about the product we intend to buy, it is in our own interest to negotiate the lowest amount of deposit to be paid. Usually, it is the seller who suggests this amount, but there is no law that states that this practice is the rule.

If we think the deposit requested by the trader is too high, we should try to renegotiate a lower amount.

There could be problems with the actual order and if this happens, our strength very often depends on how much money we still owe the trader.

We should also make sure that we know who we are dealing with, especially if we are paying deposits on goods seen only on the internet or other distance form of communication – when we are not personally meeting the seller.

Paying a deposit to an unknown company may make us vulnerable and open to theft.

If you have problems with deposits paid and are not sure about your legal rights, you may contact the Office for Consumer Affairs for more information and assistance.

[email protected]

[email protected]

Ms Vella is senior information officer, Office for Consumer Affairs, Malta Competition and Consumer Affairs Authority.

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