Crown Currency Being Run Like A Ponzi Scheme?
Published: 18 October 2010 By Diane Ray 3 Comments
I was just reading the thisismoney.co.uk article on ‘What really caused Crown Currency to fail’ and it seems that to say its collapse was down to the global economic crisis was far from the truth.
How careful it shows you must be with your holiday travel money – as 13,000 Crown Currency customers sadly found out to their cost.
According to the article, the management of the company were desperately trying to keep the company going by running something like a Ponzi scheme – inflating currency exchange rates in order to attract new customers and their cash.
This new cash was then being used to pay off earlier clients and maintain the illusion that all was well with the company.
As we covered recently on MoneyHighStreet.com, the collapse of Crown has prompted questions over whether your holiday travel money is safe. Thankfully the majority of travel cash providers do not follow the Crown model – rather you exchange cash in person at bureau de changes or get delivery next day in the post.
Perhaps though this really is a wake-up call and emphasises the attraction of using a prepaid currency card – something well worth considering if you are about to head off holiday for the school half term break.
Actually pre-paid credit cards aren’t covered by the FSCS either so that’s a really stupid idea as an alternative to buying currency by post! Your prepaid card is only as safe as the company holding your money – and if it went belly up you would be an unsecured creditor just like the CCE victims -with no consumer protection. What are you so-called moneyexperts like, eh?
Many thanks for your comment.
I would like to reference to another article we wrote to respond – ‘Holiday Travel Money – Is Your Money Safe‘
As we cover in this article, most prepaid currency cards are issued by Newcastle Building Society (NBS) and the funds loaded on to cards are instantly credited at NBS on behalf of cardholders.
NBS is regulated under the Building Societies Act of 1986 as amended at the end of 2003, as well as by the Financial Services Authority (known as the FSA).
Under this Act it stipulates that a company can only be called a Building Society if ‘its purpose or principal purpose is that of making loans which are secured by residential property and are funded substantially by its members’. Also at least 50% of the funds raised by a Building Society must be raised from deposits from the members. In this respect, the Building Societies are much more conservative than Banks and therefore less risky.
So this means that in the unlikely event of NBS running into financial difficulties, the money would be protected. In fact, NBS themselves have said that they are able to guarantee the safety of all prepaid card balances as this money is held completely separately in a designated client account, which would not be affected even in the event of the Society experiencing financial difficulty.”
“most prepaid currency cards are issued by Newcastle Building Society”
but not all. There are several players in the market. The comment “Your prepaid card is only as safe as the company holding your money” holds good. Moreover iIt is certainly possible for a building society to go bust – they just haven’t lately. Also check out the ratings agencies downgrade of Newcastle last year – building societies are not immune from financial problems.
My point is: however robust a financial institution seems to be at any one time, prepaid cards are not covered by the FSCS scheme. People are not generally aware of this – some people even have their salaries paid on to them. No one thought they would need to call on a compensation scheme when they invested in Icelandic banks and look what happened there.