How loopholes in law on refunds can let you down

The nation’s last-minute festive shoppers are being warned that one of the key safeguards against a purchasing disaster is not as watertight as they may think.

Section 75 of the Consumer Credit Act provides credit card users with the right to a refund should a retailer go bust, goods fail to turn up or are not as represented.

But gripes about failings in this legislation are rising. Some shoppers feel it does not always live up to its promise.

Advice: Resolver’s Martyn James says you should always appeal a decision not to refund

Advice: Resolver’s Martyn James says you should always appeal a decision not to refund

The Financial Ombudsman Service, which acts as a go-between when customers are unhappy with product providers, says Section 75 related complaints are rising by 14 per cent a year. Meanwhile, online complaints service Resolver has seen complaints balloon in the past six months.

The Act states that any purchase made on a credit card between £100 and £30,000 is protected. This still applies even when only a deposit for an item has been paid by card.

But Martyn James, of Resolver, believes changes in modern shopping methods mean customers are not always protected when they pay by card.

He says: ‘Paying by credit card does not always mean you get back your money. The way the Act is worded does not always fit with the way we live and shop today.’


Shoppers are increasingly losing out because only transactions made directly with a supplier are routinely covered. If a payment is made via a third party, such as Amazon, the direct link is broken, along with the protection.

To have Section 75 protection you must buy direct from the supplier of the goods. 

For example, if you buy a concert ticket direct from the venue and spend more than £100 then you are covered. Buy the same ticket through a third-party ticket agency and you are not covered. The exception is where the ticket agency is an ‘official’ seller – though this is not guaranteed.

Shoppers paying by credit card through services such as PayPal can also lose out as using them to pay a supplier breaks the link. But PayPal has its own voluntary buyer protection scheme.

People booking flights online need to be wary. If you book direct with an airline using a credit card you are covered if it goes bust, but not if you buy the flight through a comparison website.

The same goes for holidays bought through an online booking company. So it is best to use a comparison website to compare holiday deals, but then book direct to ensure you are covered by Section 75.

The Financial Ombudsman Service has pressed the Law Commission to make Section 75 more watertight.

In a statement to the Commission’s consultation on law reforms earlier this year, the Ombudsman said: ‘We frequently see cases involving a break in the ‘debtor-creditor-supplier’ relationship.

In these situations, consumers who are making a payment using their credit card may not realise the usual protections do not apply.’ Currently, two thirds of complaints about Section 75 are rebuffed by the Ombudsman.

Martyn James says: ‘Always appeal a decision not to refund as the law is so grey even the credit card companies often do not fully understand it.’

The Commission has decided not to reform the law on third party payments. It will leave any changes to the Financial Conduct Authority as part of its overhaul of the Consumer Credit Act. This is due to become law in 2019.

In safe hands: Section 75 covers store cards but not second card holders

Many popular payment methods have little protection, but there are steps you can take to minimise the risk of losing out.

CASH: If something goes wrong when paying for goods there is no audit trail – and no Section 75 cover.

TIP: Keep receipts, even photograph them for your records. This is also useful if an insurance claim is later necessary to make good any loss or report a theft.

CHEQUES: Millions of cheques are still written every year. Although fraud is declining, about £14 million is stolen this way by fraudsters using counterfeit, forged or fraudulently altered cheques. If a cheque is tampered with the bank will reject it.

TIP: If accepting a cheque as a refund, do not return the items until six working days have passed since it was banked. Only then is the money yours.

If a refund is for a large sum consider asking for a different form of payment such as bank transfer. If writing a cheque, use a pen and put a line through any empty spaces. Alarm bells should ring if you are offered a cheque for a greater amount than agreed – and then asked to pay back the difference.

Store cards are covered by Section 75 in the same way as a credit card

Store cards are covered by Section 75 in the same way as a credit card

STORECARD: Pushed at the till, these cards charge high rates of interest. On the plus side they are covered by Section 75 in the same way as a credit card.

TIP: A storecard can be useful for getting a big discount on your first purchase, but make sure any balance is paid off in full – and consider cutting it up afterwards. It is an expensive option.

DEBIT CARD: Though excluded from Section 75, card providers offer a voluntary scheme called ‘chargeback’. It means you can ask your bank to get money back in a disputed transaction. Unlike Section 75 there is no upper or lower limit so it can work for claims – even on credit cards – below or above the £100 and £30,000 limits.

TIP: Act swiftly to claim as there is usually a time limit (maximum 120 days).

BANK TRANSFER: Paying someone by bank transfer, usually online or by phone, means the payment goes straight from your account to the recipient’s.

But it is similar to paying by cash as there is no safety net if things go wrong. More than 19,000 people lost out to fraudulent bank transfer scams in the first six months of this year, losing some £100million.

TIP: Always check you are sending the money to the correct person and account. Test it first with a £1 transfer – then call to check it has arrived. If a payment goes to the wrong destination or a fraudster, contact your bank as soon as you realise, as it needs to act quickly to get the money back.

Following a campaign by consumer group Which?, banks are planning to do more to help retrieve funds lost as a result of a bank transfer. The Payments System Regulator is also contemplating setting up a compensation scheme.

SECOND CARD HOLDERS: Many couples share a credit card, but second named cardholders are not protected by Section 75 if they purchase something just for their own use. If the item is shared, say a sofa for the home, they should be covered.

TIP: The main cardholder should make any claim under Section 75, even if they did not make the purchase.

To avoid potential problems, the main cardholder should make any large purchases on the card.


Courtesy: Daily Mail Online

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