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22 Jul 2017

Credit card confusion: shoppers losing out on refund rights

Out-of-date Section 75 law letting consumers down, a Which? Money investigation finds

Ripped-off shoppers seeking a refund from their credit card company are being let down by an antiquated piece of consumer protection law, a Which? Money investigation has found.

Section 75 - part of the Consumer Credit Act 1974 - lets you claim a refund from your credit card company if something goes wrong with your purchase and the retailer can't or won't make it right.

While people have used it to successfully claim their money back for more than 40 years, the ageing law predates many modern payment providers, such as PayPal, Sum Up and iZettle, meaning some newer ways of paying are falling foul of its strict requirements.

Which? Money has found widespread confusion between card firms and payment processors about how the law applies to payments handled in less traditional ways.

In one case a scam victim had his claim rejected by card firm MBNA, only for the Financial Ombudsman Service (FOS) to overrule it and insist he be refunded.

How Section 75 works

When you pay for goods or services costing £100 to £30,000 on a credit card, in many cases Section 75 makes your card provider jointly liable with the retailer when something goes wrong.

This means you can ask the card company for a refund if an item or service is not delivered, is faulty or not as described, or the retailer has gone bust without providing it.

For an in-depth explanation of how Section 75 works, see our guide.

Our research shows most claims are successful, with eight in 10 Which? members who'd launched a claim getting all their money back.

Yet others are falling foul of a little-understood requirement. For a Section 75 claim to be valid, your payment must normally go directly into the retailer's bank account without being handled by intermediaries.

Breaking the link

Most card payments are collected through a traditional route known as 'merchant acquiring,' which means they are passed directly to the retailer's account.

Payment processors like PayPal, however, sometimes collect your payment themselves and then pass it to the retailer in a completely separate step.

This can be enough to break the crucial link between the debtor (cardholder), creditor (the card provider) and the supplier (the retailer), which valid Section 75 claims usually require.

The trouble is that it's usually very difficult for a customer to find out the precise mechanics of how their payment is being processed, and this is compounded by disagreement within the industryover which payment methods do or don't qualify for Section 75 protection.

This can pose a problem whether you're paying online through a payment firm like PayPal or Skrill, or in person using a card machine.

Claims for payments taken through iZettle and Sum Up card readers have been rejected by card firms in recent years - even though iZettle told us its 'firm belief' is that its card processing services 'should not disrupt the additional consumer protection Section 75 provides.'

Paypal confusion

Dexter Jeffrey had his Section 75 claim rejected due to the way the payment was processed

In 2014, Dexter Jeffrey (pictured) was duped into investing in a goldmining scheme. The police later warned him this was a suspected boiler-room scam.

Mr Jeffrey was able to launch a Section 75 claim, as he'd paid the deposits for the investments on credit cards. But his card company, MBNA, rejected the claim, as his deposit payments were debited by PayPal.

Mr Jeffrey complained to the FOS. It found the deposits were paid to the supplier directly, through a PayPal Here device (a card reader), which kept the debit-creditor-supplier link intact. MBNA was ordered to refund him more than £35,000.

MBNA told us this was the first time it had been approached with a claim regarding PayPal Here, and there was 'some uncertainty as a result', but it now understands this doesn't break the debtor-creditor-supplier chain. It apologised for the inconvenience and paid the claim in full.

Know your Section 75 rights

The unfortunate truth is that there's no definitive list of which payment systems or providers qualify for Section 75 protection, so shoppers are often in the dark until they actually make a claim.

The FOS, which rules on Section 75 disputes, says it must judge every complaint on a case-by-case basis due to the complexity of the law.

However it has acknowledged the confusion around this issue by raising it with the Law Commission, which considers proposals for legislative reform. It's still unclear whether the government has the appetite for reforming the rules.

If you're about to make a purchase and want to be able to rely on section 75 if something goes wrong, here are our top tips:

  • Be prepared. Make a record of the retailer's promises or claims and check whether these definitely apply to your purchase before you commit.
  • Ask questions. If possible, find out how the payment is being processed and whether there is a third-party payment firm like PayPal involved.
  • Keep documents. Hang onto any emails, contracts or receipts relating to the purchase as these can be crucial to a later claim.
  • Push back. If the credit card firm rejects your claim and you're not sure whether they're right, you can complain to the FOS for an impartial ruling.
  • Try chargeback. If your claim fails, a similar scheme called chargeback could offer a lifeline - albeit within strict time limits. Some payment firms, like PayPal, also offer their own buyer protection schemes.