Crowdfunding, or minimising risk?

[Junctionmad]

What you describe is the situation whenever a company takes payment in advance of delivery. The point here is that under UK law a supplier cannot reduce its risk or pass it on to customers by setting up a project as a rewards crowdfunding rather than as a pre-order. So we should probably be talking about "customer-funded projects" instead.

 

Greater risk-sharing could be achieved by use of an overseas crowdfunding platform or setting up a separate company for each project but of course you would get fewer customers for that kind of proposition.

 

The vast majority of crowd funding projects , certainly outside our little bubble here are startups , if the projects fail the punter looses his or her money, consumer law is no security net

[Junctionmad]

I find the concept adds complexity to something that is meant to be enjoyable. If I want to invest money I'll invest money, this is a hobby. I worry that some schemes seem to be ending up trying to design models by committee and just don't seem viable.

The funders don’t design it, so I don’t see your point

 

Again , if you don’t like crowdfunding , you arnt going to participate , hence I suggest opinions thrrrfire are hardly relevant

 

I have participated in several electronic projects , 4 to be precise in the last two years . Three delivers one did not . I’m quite happy with my decisions

[jjb1970]

If you want to join crowdfunders that's entirely your choice. If crowdfunding is becoming an increasing part of model supply then model enthusiasts opinions on the subject are relevant regardless of whether or not they like the concept.

[The Stationmaster]

The funders don’t design it, so I don’t see your point

 

 

 

Maybe you haven't read a thread elsewhere on RMweb about one current crowd funded project where, notwithstanding a clear original specification, exactly that seems to have been going on with all sorts of debate about this, that, or whatever, which are effectively saying 'alter the original spec to this' or 'I think/know from experience that this will/won't work and is/isn't what I want so please change it/don't change it'.

 

Not that I am likely to sign up for crowd funding anything but surely if I pre-order (which I do frequently) I am pre-ordering against a stated specification and standard of finish etc and not the spec or standard of finish which another customer says they want instead of what was originally offered?  Although obviously in either case I can withdraw my commitment if the spec is changed.

[jjb1970]

In some ways the effort to (re)design by committee is in response to an obvious lack of viability for some projects as launched. Crowdfunding may provide an alternative form of funding but it doesn't alter the demand for models, it may even dilute demand for particular releases by promoting greater diversity of available models on the basis that many modellers have a budget which can be spent however they like but which isn't infinitely expandable (not that I'm complaining about that, that's just another element of the supply - demand balance). However you fund something, if production doesn't exceed a certain minimum then amortising development costs over a small production run has obvious consequences for product cost and reaches a point where unless the customer is Bill Gates or similar then it will price the product out of the market.

[grahame]

. . . . surely if I pre-order (which I do frequently) I am pre-ordering against a stated specification and standard of finish etc

Although I get the impression that much crowndfunding includes the cost of design so there is unlikely to be a full specification provided more than just a set of rough expectations and standards as targets to aim for. That's certainly been the case of those crowdfunders I have supported including non-model railway projects and the specification/finish has been unveiled as the project develops after sign up - a reason for regular update communication and confidence in the proposal and producer.

 

I do agree that I wouldn't be happy if the expectation/standard changed because another backers suggested it.

 

G

Edited May 17, 2018 by grahame

[grahame]

In some ways the effort to (re)design by committee is in response to an obvious lack of viability for some projects as launched.

I don't think that is the case just for poor viability crowdfunded projects judging from many posts on RMweb where people are suggesting design changes to mainstream manufacturers announced new models to make the price lower.

 

G

[JSpencer]

The vast majority of crowd funding projects , certainly outside our little bubble here are startups , if the projects fail the punter looses his or her money, consumer law is no security net

 

From what I read, in the UK, Crowdfunding start ups come under Finance Law. If the crowdfunding is to purchase an item (like a class 92 model), it comes under consumer law. There the person can cancel and be refunded up to 14 days after delivery (up to a good couple of years into the future with model railway products). IF a company wants to de-risk to the crowdfunders (the project fails to deliver a railway model and the crowdfunders take the hit) then the project must get/have approval from the FCA (Financial Conduct Authority) or go through an FCA approved crowdfunding platform and that platform sees the project as being subjected to FCA rules.... Otherwise Consumer laws apply.

 

IF the company goes bankrupt, Credit Card protection applies BUT only if the supplier is directly linked to the credit card company and NOT passing through a third party system (like paypal).

 

This is possibly the problem with one manufacturer's approach because  a) it does not seem to have been give approval by the FCA and so b) look's to be against consumer rights and finally c) the chosen payment method offers no protection by law.

 

There are of course voluntary payment protections in Paypal and others but these are not enforced by law and may not cover crowdfunding cases (I know I can dispute a paypal payment X time into the future BUT I cannot ask for a refund 2 years later if the product failed to be delivered and the company ceased to exist!). Also Credit Card laws don't really apply to debit card transactions but again such protection may be offered.

[dpgibbons]

As I understand it the FCA's remit covers loan-based and investment-based crowdfunding schemes but not the rewards-based projects we are discussing here

 

https://www.lexology.com/library/detail.aspx?g=0a4d2358-0916-42a2-b223-726e400ac3fe

[njee20]

Yep, nothing whatsoever to do with the FCA here.

[JSpencer]

As I understand it the FCA's remit covers loan-based and investment-based crowdfunding schemes but not the rewards-based projects we are discussing here

 

https://www.lexology.com/library/detail.aspx?g=0a4d2358-0916-42a2-b223-726e400ac3fe

 

Yep, that is where I think consumer law kicks in. So legally it would seem you could pull out and be refunded.

[Andy Y]

So legally it would seem you could pull out and be refunded.

 

No; existing consumer legislation means that you are entitled to return an item for any reason within 14 days after supply or for a refund if it is not as advertised or does not perform. You would also have legal recourse if the product is not delivered. You would not be entitled to a refund for pulling out part way through the process.

 

I thought we'd got this nailed down.

[scottystitch]

For what it's worth, I've just had a look at my Kickstarter account and discovered that I've backed 29 projects, the very first one being a 3d printed Gannet in N Gauge. Out of the 29 three are outstanding, but the rest have all been delivered. No defaults.

 

The majority have been for comic books/graphic novels, usually where the seller has the work done and seeks funding for publishing. In some cases the outline has been completed and the work requires colouring and finishing and so the funding is for that also. Most have been very high quality. 

 

Six have been for tabletop games. and one for a tripod adaptor for mounting a smart phone quickly and conveniently (curiously called the "Glif"), one for a laser-cut wood based engineering model, and one for a Mac-based computer game.

 

On top of that I was in for two Pendolinos (delivered) and 21 35T Tanker wagons from RevolutioN (which should be arriving imminently.)

 

Crowdfunding, for me, has been a very positive experience, but perhaps importantly, all of those I backed on Kickstarter had something tangible to show when seeking crowdfunding. In most cases they just needed help getting their idea into production.

Edited May 17, 2018 by scottystitch

[JSpencer]

No; existing consumer legislation means that you are entitled to return an item for any reason within 14 days after supply or for a refund if it is not as advertised or does not perform. You would also have legal recourse if the product is not delivered. You would not be entitled to a refund for pulling out part way through the process.

 

I thought we'd got this nailed down.

 

Ah ok. The only grey area is the definition of not delivered. Who would specify the time for delivery and when could you trigger recourse for non delivery?

[Andy Y]

Ah ok. The only grey area is the definition of not delivered. Who would specify the time for delivery and when could you trigger recourse for non delivery?

 

In a conventional transaction of an in-stock item it's easily defined. Pre-ordering (which is in effect what is happening) and prepaying is more of a grey area anyway but if an expected or defined delivery date is passed then one can reasonably expect to say it's non-delivery. If the delivery is constantly delayed as part of the process and the reasons communicated then yes, it does become a grey area and would need to be legally resolved. If the supplier did not issue a refund when requested it's small claims/debt recovery but as we know from the Coopercraft saga that does not always have a successful outcome for the customer. Once again assessment of reputation, potential risk and level of tolerable loss should be made before entering into a process.

[dpgibbons]

Andy - I'm aware you have been researching this topic so I'd be interested to hear under what circumstances you believe non-delivery or a failure to refund would not be covered by credit card protection.

 

I would have thought that if the project is not delivered within the advertised timescale and a refund has been refused then that would be evidence enough of non-delivery for a claim on the credit card provider.

[dpgibbons]

It's already been noted that using Paypal can invalidate credit card protection but this loophole may also extend to other financial intermediaries such as Worldpay and Sage that are often used by online retailers. 

 

https://www.moneysavingexpert.com/news/cards/2017/05/ombudsman-requests-reform-of-section-75-credit-card-protection-as-more-caught-out-by-loophole

[jjb1970]

I don't think that is the case just for poor viability crowdfunded projects judging from many posts on RMweb where people are suggesting design changes to mainstream manufacturers announced new models to make the price lower.

 

G

I think that is rather different. People make all sorts of requests and suggestions on RMWeb (and other forums, and by other means) but that is just what they are, requests and suggestions. If a manufacturer has priced their product and done their research to be confident enough to go ahead with development and decide on a price of £200 (for example) then people might whinge and request reducing the spec to lower cost but usually the manufacturers just ignore that sort of request (although tey may consider whether there is a space in the market to exploit for lower cost products) and ultimately it is the suppliers risk. What we seem to be seeing in one case at least is an attempt to find a lowest common denominator for a design via web forum in recognition of the fact that the project as advertised is clearly not viable. I think the case illustrates a truth that crowdfunding does not alter in any way, that for a product to be worth making there needs to be sufficient demand for it to make production worthwhile at anything like a viable cost.

[Andy Y]

Andy - I'm aware you have been researching this topic so I'd be interested to hear under what circumstances you believe non-delivery or a failure to refund would not be covered by credit card protection.

 

I would have thought that if the project is not delivered within the advertised timescale and a refund has been refused then that would be evidence enough of non-delivery for a claim on the credit card provider.

 

Credit card companies are jointly and severally liable for the total value of a transaction if all or part of it is paid by their card for transactions over £100 and less than £30,000 (Consumer Credit Act 1974, Section 75) where there is a breach of contract or misrepresentation (non-delivery being classed as breach of contract). The only practical limitation on the time available to make a claim is six years from the transaction.

 

I am unsure if this clause affects payment by more than one installment using the card:

 

(3)Subsection (1) does not apply to a claim— ©under a debtor-creditor-supplier agreement for running-account credit - (ii)which requires that the number of payments to be made by the debtor in repayments of the whole amount of the credit provided in each such period shall not exceed one.

 

From http://www.thisismoney.co.uk/money/cardsloans/article-2605929/Find-rights-credit-card-refund-Section-75.html

 

 

How do I go about claiming?

 

Using Section 75 shouldn't necessarily be the first thing you do when you've been let down by a retailer. Initially you should contact the company you made the purchase from and try and get a refund that way.

 

Although the credit card company is jointly liable, you are more likely to sort out the issue quicker by going to the retailer first.

 

You are also far more likely to get all the help possible from your credit card company if you have been to the person who supplied the faulty goods or failed to deliver a service first.

 

In the event they refuse or if you don't get a reply, then you should write to your credit card provider, including the following information:

 

What you bought, where, when and how you bought it, and how much you paid. Include copies of receipts

Details of how the goods and services you received constituted a breach of contract as they were either faulty, not as described, or were not received at all

Details of attempts you've made to contact the company and the responses you've had

An explanation of what you want from the credit card company - namely to refund the money you paid for the goods you've received.

If you are rejected for a Section 75 refund and are adamant you think this was an unfair decision by your credit provider, then you can make a complaint to the Financial Ombudsman Service.

 

 

What you may find you probably would not be covered for is deciding to bail out of the process at any stage when there is no proof that the product was not delivered or was as specified.

[Revolution Ben]

What we seem to be seeing in one case at least is an attempt to find a lowest common denominator for a design via web forum in recognition of the fact that the project as advertised is clearly not viable.

 

I think the case illustrates a truth that crowdfunding does not alter in any way, that for a product to be worth making there needs to be sufficient demand for it to make production worthwhile at anything like a viable cost.

Hello all,

 

This is right, and brings us back to crowdfunding 101 - assess each project on its merits for yourself. Look at the proposed model, and the proposer(s) and do your own due diligence.

 

In some ways crowdfunding is the purest form of market research - if you offer a project and not enough people sign up for it then you know it's a bad bet, and you cancel it.

 

Revolution has experience of this: We offered N gaugers the possibility of a Class 21/9; we needed around 800 responses to make it work but received around 300 in four months. So we canned it. A shame, as I personally would love a 21/9 for that putative late 60s Scottish layout of my dreams. But the numbers were not there.

 

Cheers

 

Ben A.

[Dunsignalling]

Ah ok. The only grey area is the definition of not delivered. Who would specify the time for delivery and when could you trigger recourse for non delivery?

In an arrangement like this, I suspect the definition of non-delivery would need to be tested in court, and that the credit card company would want to obtain the clarity of a ruling on an issue that, potentially, has significant repercussions for them.

 

Anything less than a precise contracted delivery date is likely to be treated in law as a target or estimate which would have to be overrun by a considerable margin before the customer pulling out would be considered reasonable (the basis on which such judgments are reached).

 

Participating in a crowdfunded project effectively blurs the line between being a customer and a shareholder. The legal ramifications of that in relation to consumer law have (AFAIK) yet to be established, either by Parliament, the courts or the Ombudsman setting a dispute between consumer and credit card issuer.

 

For the amounts likely to be involved, I doubt anyone will take the legal route any time soon and a ruling by the Ombudsman might only provide clarity in a fairly narrow range of circumstances so we'll need to wait until Parliament decides it's an area in which consumer law requires updating.

 

Crowdfunding parallels share-buying and (to a lesser extent) gambling, with the risks that go with both, so the usual advice applies; if you can't afford to lose your stake (or at least take some considerable time to recover it), don't bet. 

 

John

Edited May 18, 2018 by Dunsignalling

[grahame]

I think that is rather different. People make all sorts of requests and suggestions on RMWeb (and other forums, and by other means) but that is just what they are, requests and suggestions. If a manufacturer has priced their product and done their research to be confident enough to go ahead with development and decide on a price of £200 (for example) then people might whinge and request reducing the spec to lower cost but usually the manufacturers just ignore that sort of request (although tey may consider whether there is a space in the market to exploit for lower cost products) and ultimately it is the suppliers risk.

I don't think it is rather different. Sure mainstream manufacturers tend to ignore requests for changes to standards/specifications (and perhaps crowdfunders can learn from that) but I, and I suspect many others, would be pretty hacked off if they changed the standards/specification of an announced product part way through development having placed an order and paid a deposit. Just look at the reaction to the Oxford Dean Goods. Yet somehow it seems to be somewhat more a common expectation with crowdfunding and which, for me, makes me apprehensive to back many projects.

 

What we seem to be seeing in one case at least is an attempt to find a lowest common denominator for a design via web forum in recognition of the fact that the project as advertised is clearly not viable. I think the case illustrates a truth that crowdfunding does not alter in any way, that for a product to be worth making there needs to be sufficient demand for it to make production worthwhile at anything like a viable cost.

It does appear to be the case that is happening in one particular case and perhaps it's indicative that the proposed project won't work and needs to be cancelled. There are certainly plenty of crowdfunded proposals that haven't got off the ground. And, of course, there have been cancellations/putting-in-abeyance of announced projects (that are not crowdfunded) when it is considered they are not viable - Dapol have done so with many N projects, Bachmann/Farish have cancelled models announced and DJM have recently cancelled their class 74 and class 17 (although they do seem to have become somewhat hybrid funded developments).

 

G.

Edited May 18, 2018 by grahame

[dpgibbons]

John - you are quite right to point out some legal grey areas and the risks that go with parting with money for products that may never be delivered - although of course us railway modellers have been living with that risk since long before we started calling it crowdfunding and not pre-ordering.    

 

As discussed previously in this thread, there appears to be nothing in consumer law that distinguishes a UK reward crowdfunding from any other purchase. In the event of a dispute the matter would likely to go to the small claims court where the onus would be on the vendor and not the customer to establish the contrary. Of course, if a crowdfunded project goes wrong the customer's best chance for redress is likely to be from the credit card company rather than a court, as detailed in Andy's post above.

 

Disputed credit card protection claims are dealt with by the Financial Ombudsman and not by a court case. You make a good point in saying that non-delivery in a long term project may be a grey area, and that's a good reason why a clear project timescale and regular updates should be on the crowdfunders' checklist. However, credit card claims for non-delivery are very common whilst precise delivery dates are not, so I doubt that the Ombudsman would find it as difficult as you say to establish grounds for a refund. If the vendor terminates the project or goes bust then there should be no room for doubt. 

Edited May 18, 2018 by dpgibbons

[Dunsignalling]

John - you are quite right to point out some legal grey areas and the risks that go with parting with money for products that may never be delivered - although of course us railway modellers have been living with that risk since long before we started calling it crowdfunding and not pre-ordering.    

 

As discussed previously in this thread, there appears to be nothing in consumer law that distinguishes a UK reward crowdfunding from any other purchase. In the event of a dispute the matter would likely to go to the small claims court where the onus would be on the vendor and not the customer to establish the contrary. Of course, if a crowdfunded project goes wrong the customer's best chance for redress is likely to be from the credit card company rather than a court, as detailed in Andy's post above.

 

Disputed credit card protection claims are dealt with by the Financial Ombudsman and not by a court case. You make a good point in saying that non-delivery in a long term project may be a grey area, and that's a good reason why a clear project timescale and regular updates should be on the crowdfunders' checklist. However, credit card claims for non-delivery are very common whilst precise delivery dates are not, so I doubt that the Ombudsman would find it as difficult as you say to establish grounds for a refund. If the vendor terminates the project or goes bust then there should be no room for doubt. 

The main thrust of my post was to separate the issue of a project failing, for which the position regarding a credit card refund is clear, and over-running, leading to a participant wanting to withdraw from his side of the implied/informal contract.

 

I feel the terms customer and vendor may be problematic in relation to models produced in this way. The person organising the scheme is neither a retailer or a manufacturer in the accepted sense of either word, but only facilitates the production and eventual distribution of the item (even though he might well have had a hand in its design). The nearest existing term I can think of would be "managing agent". TBH, this is little different to what Hornby do, but the crucial difference is that they don't ask for deposits. 

 

Such a transaction differs from, say, paying a deposit paid on an in-demand new car in order to secure a place on a waiting list. The nature and quality of the car is known in advance. Real product exists, and you therefore know exactly what you will be getting once yours has been made. 

 

Crowdfunding blurs the line between retailers, manufacturers, and some bloke who is neither, but equally, does one become a "customer" (and "order") or a "partner" (and "invest in") a crowd-funded model that is likely, at best, to consist of partially developed CAD files at ones point of entry?

 

The product itself will remain hypothetical for most of its gestation period. The length of that can vary because of factors outside the control of the "vendor" or "managing agent" who, if he has any sense, will promise a timescale with plenty of "contingency" built in.

 

It would be unreasonable to expect card issuers to make refunds to individuals who bail ahead of deadlines they knew about from the outset, but I can envisage some "customers" not being happy if "balance on delivery" suddenly became due six months sooner than expected.........  . 

 

John

Edited May 18, 2018 by Dunsignalling

[jjb1970]

Hello all,

 

This is right, and brings us back to crowdfunding 101 - assess each project on its merits for yourself. Look at the proposed model, and the proposer(s) and do your own due diligence.

 

In some ways crowdfunding is the purest form of market research - if you offer a project and not enough people sign up for it then you know it's a bad bet, and you cancel it.

 

Revolution has experience of this: We offered N gaugers the possibility of a Class 21/9; we needed around 800 responses to make it work but received around 300 in four months. So we canned it. A shame, as I personally would love a 21/9 for that putative late 60s Scottish layout of my dreams. But the numbers were not there.

 

Cheers

 

Ben A.

At the risk of sounding unctuous or sycophantic I think Revolution are a model of good crowd funding in model trains.