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28 Apr 2020

Coronavirus holiday and event cancellations: are banks unfairly dismissing refund requests?

Which? calls on banks to clear up confusion over customers' refund rights for cancelled events and holidays

If you've reached a stalemate with a business over refunds for coronavirus-related cancellations, you may be able to recover your money through a card protection scheme known as chargeback - but Which? is concerned that banks are unfairly dismissing valid claims.

Travel companies and other businesses are asking customers to accept credit notes or the chance to rebook tickets for free, even where the original terms and conditions stated that customers are entitled to card refunds.

Credit notes and vouchers are aimed at helping these industries stay afloat during the global pandemic but neither option is appealing if people don't know when they can travel again, or fear that firms will cease trading and take their money with them.

In these cases, people are turning to their banks for help. The number of people using the free Which? chargeback and Section 75 tool has shot up to 10,000 in March and April so far, compared with 1,000 in January and February of this year.

However, banks are treating very similar cases differently, with some accepting claims where businesses will only offer credit notes or vouchers and others rejecting them on the basis that the businesses have tried to offer a suitable alternative.

Read the latest coronavirus news and advice from Which?.

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Although each case is assessed individually and will depend on the terms and conditions in place between you and the retailer or trader at the time of booking, Which? believes many people might have a valid claim through two forms of consumer protection.

  • Chargeback allows you to ask for a transaction to be reversed if you aren't able to resolve a dispute, including services not delivered. This covers all card payments though it isn't a direct consumer right - it's a process agreed between financial institutions and the relevant card scheme (American Express, Mastercard or Visa). Card issuers aren't legally compelled to raise chargebacks but the Financial Ombudsman Service (FOS) has said it expects banks to attempt one where there's a reasonable prospect of success.
  • Under Section 75 of the Consumer Credit Act 1974, your credit card provider is jointly liable with the retailer or trader for any breach of contract or misrepresentation - as long as the value of the goods is more than £100 and less than £30,000. Even if you've only used your credit card to cover a deposit, your provider would still be liable to refund you for the full amount. Most card issuers will ask if you've sought reimbursement from the retailer or trader before pursuing a claim, but remember this isn't an obligatory first step - just always be clear you want to make a Section 75 claim under the Consumer Credit Act 1974.

Find out more: using Section 75 to get a refund from your airline

Chargeback rights: Mastercard vs Visa

Mastercardguidance confirms that there is a chargeback right where merchants (the retailer or trader) have cancelled goods or services, even where this is due to government restrictions, insolvency or other exceptional circumstances.

Mastercard has also told Which? that chargeback is valid if the cardholder doesn't wish to accept the merchant's offer to rebook or have a voucher, unless this alternative was made clear at the time of the purchase.

However, you must always try to resolve the issue with the merchant first and this position could change, if for example, the government was to issue regulations stipulating that businesses can provide vouchers in lieu of refunds.

Visa's guidance to card issuers also states that merchants should process a refund promptly if the cardholder declines to accept credit notes or vouchers for future use. And cardholders do have a dispute right when goods or services are not provided, including due to bankruptcy.

Visa does make an exception where merchants have failed to provide a service due to a government-imposed prohibition because this 'supersedes Visa rules on dispute rights'. This suggests that Mastercard customers might have more success than Visa customers when making chargeback claims related to coronavirus cancellations.

However, Which? understands that in the example of a flight cancelled because borders are closed, customers will still have a dispute right under both Visa and Mastercard, because the EU-wide rules around refunds essentially override the government prohibition.

Similarly, Visa has said that cardholders trying to get money back for ticketed events don't have to accept a new date or vouchers, even where the event was cancelled due to the government ban on public events.

We think Visa guidance is too easily misinterpreted and could lead to an inconsistent and confusing approach from banks.

American Express (Amex), the other major card network, is yet to respond to our questions.

What if I accept vouchers and the business goes bust?

Both Mastercard and Visa say that the card issuer (your bank) can submit a chargeback if the merchant has offered a reasonable alternative (eg voucher or gift card) and becomes insolvent before this is provided.

Card schemes' guidelines suggest that you would have to file the dispute within 120 calendar days of the original transaction date or 120 calendar days from the last date that you expected to receive the merchandise or services (up to a maximum of 540 days from the transaction date).

Visa says if you have accepted vouchers or credit notes and the airline later becomes insolvent, the 120 day chargeback window starts from the date of the original flight.

However, Mastercard says that if you have accepted vouchers in lieu of the cancelled goods and the merchant subsequently ceases trading, you have 120 days from the voucher's expiration date to claim (or max 540 days from the transaction if it's undated).

Amex is yet to respond to our questions.

What do the banks say about chargeback and Section 75?

When we asked banks to confirm if they would attempt to process refunds (whether using chargeback or under Section 75) where businesses are only offering credit notes or the chance to rebook for free, most would only say that said each case is assessed independently (see table below).

In relation to chargebacks, Virgin Money (Mastercard) made it clear that if the alternative arrangements are not covered in the terms and conditions, it would normally expect a chargeback to be successful.

Starling (Mastercard) and Lloyds Banking Group (Mastercard and Visa) said that they can initiate a chargeback where the offer of vouchers or free rebooking is not deemed suitable by the customer.

Are banks dismissing valid chargeback claims?

Which? has spoken to customers at Halifax (part of Lloyds Banking Group), Metro Bank and Royal Bank of Scotland (RBS) who were told that they are not eligible for a refund from their bank because the businesses in question have offered a suitable alternative.

When Sally Curnick, 51, from Essex booked a £2,200 family ski trip to visit her daughter she was assured by Sunweb Holidays that she would be fully refunded if resorts closed. The travel company has since told customers that it can only offer a voucher entitling them to book a package holiday for one year after the issue date.

Sunweb Marketing Ski (UK) told us that if it were to cease trading, these vouchers will be reimbursed by the Dutch guarantee scheme Stichting Garantiefonds Reisgelden (SGR). It is asking for 'understanding during these exceptional circumstances and this unprecedented situation.'

Sally believes it's unfair to expect consumers to bear these costs and isn't in a position to rebook the trip. Having split the cost across two cards, she asked Halifax and Metro Bank to help. But both banks told her chargeback isn't possible because Sunweb has offered a voucher.

This contradicts Lloyds claim that it can pursue a disputed transaction claim under chargeback scheme rules as long as a customer has proof that a refund has not been offered.

Metro Bank has now said it will review Sunweb's written T&Cs before outlining next steps. Lloyds is also reassessing Sally's request.

An RBS customer is in a similar position after being told by her bank that her dispute is not eligible for a refund because the airline in question offered vouchers in lieu of the flight.

She said: 'As we expect them to go bust imminently, or at least flight prices to rise significantly, we definitely do not want vouchers and feel it is unfair that they have almost £750 of our money. We feel trapped in some Kafkaesque situation where no one will refund the money that we are owed which feels very unfair.'

RBS said that it looks at each claim on a case-by-case basis.

Should you accept a credit note or voucher?

For now, we are advising against accepting credit notes and vouchers if an event or holiday you've booked has been cancelled as a result of the coronavirus outbreak.

Which? is lobbying for the government to support the travel industry, but is insisting that customers' right to a cash refund must be upheld.