Credit card companies have been accused of flouting consumer protection law by
denying refunds to shoppers and holidaymakers owed money for goods or
services that were faulty or not delivered.
Under section 75 of the Consumer Credit Act 1974, card providers are supposed
to provide refunds if you buy any item costing between £100 and £30,000 on a
credit card and the goods are defective or do not turn up. This lifeline
means that if you order something and the retailer goes bust, you can still
claim back your money from the card company.
However, legal experts warn of a growing tendency for providers to try to
wriggle out of making repayments under false pretences. Some customers
report being told that claims are void because they failed to notify the
card company within a set period — normally 90 days. Legally, however,
customers have six years to claim, even if they no longer use the card.
The Financial Ombudsman Service (FOS) has experienced a 50 per cent jump in
complaints linked to section 75. Martyn James, of the FOS, says: “Between 50
and 75 claims related to section 75 are being lodged each week, driven by
the economic situation. As more suppliers go out of business a growing
number of people are having to rely on credit card companies to provide
refunds and are coming to the FOS when their claims are rejected.”
Tesco Personal Finance and Lloyds are among the worst for rejecting claims for
compensation, say lawyers, though the lenders deny this.
Helen Lacey, of Which?, the consumer organisation, says: “We have seen a real
increase in calls from members complaining about their credit card providers
rejecting their claims for spurious reasons.”
Though some experts believe that the economic downturn has led some companies
to attempt to limit refunds, poor training and a misunderstanding of
consumer law may also be responsible for the increase in disputes.
Ingrid Gubbay, of Hausfeld & Co, the consumer and human rights law
specialist, says: “I have seen customers who were made to respond to an
overwhelming number of letters from credit providers. This points to either
a lack of training of customer service staff or a deliberate policy to avoid
paying legitimate claims in the hope that claimants will give up and go
away. These increasingly routine avoidance tactics at best deny the
underlying purpose of section 75 and at worst are a clear breach of the
Consumer Credit Act and financial services regulation.”
Often claims are rejected on the basis of obscure points. Ms Lacey explains:
“Some people have been told that their claims are not valid because they
purchased their goods outside the UK; others that the claim has been
rejected because the trader has gone out of business — again not true.”
Other excuses include companies insisting that items bought as part of a set
have to be claimed for separately. For example, the lender might say that a
dinner set bought as a wedding present has to be split into individual
plates, cups and saucers. The claim is then turned down because each of
these items is worth less than £100.
Ms Gubbay says: “In our opinion the loss should be based on the retail price
that was paid.”
Another ruse is to reject a claim because you have changed your credit card
provider since buying the goods. However, the provider of the card used to
buy the goods remains liable, even if you are no longer a cardholder, and
should provide a refund.
Sometimes, companies insist that you can claim for money that you have lost
but not for losses made by friends or family, even though you used the same
card to make the transaction. This could arise when a card is used to book a
family holiday and the travel company then goes bust.
Ms Gubbay says: “This is complete nonsense if you can prove the loss by
showing the purchase of the tickets with separate family names or bank
statements that correspond with the amount claimed.”
There is no doubt that the growing number of companies going bust has
contributed to the jump in claims and disputes. But section 75 also protects
consumers who buy goods or services from solvent companies. A common ploy is
to tell customers that they must first seek a refund or obtain a court
judgment against the supplier. However, the law states that the customer can
choose whether to claim against the supplier, the card issuer or both.
It is not only credit card borrowers who are protected by section 75. The law
applies to other credit agreements, such as many car loans arranged through
dealers. Hire purchase agreements may also be covered, but it may be hard to
claim if you have not kept up with the payments, as the car does not belong
to you until it is paid off.
If an agreement is covered, it will usually say something like “this agreement
is regulated under the Consumer Credit Act 1974” in the terms and conditions.
Since a landmark House of Lords ruling in 2007 it has been possible to claim
for goods or services bought abroad — in person when travelling or on
holiday or on the internet. Before the ruling, refunds were made at the
lender’s discretion.
Debit cards, store cards and charge cards are not covered. However, anyone who
uses a Visa debit card is protected by its Chargeback scheme. The scheme
applies to all Visa debit cards, and can also be used for Visa credit card
purchases where section 75 is not applicable, such as for goods costing less
than £100. It also covers prepaid Visa cards and Visa Electron purchases
where the goods do not arrive, arrive damaged or are not as described.
Payments made through online payment systems such as PayPal are not covered by
section 75 but should be covered by Chargeback. It also provides protection
if your card is used fraudulently.
To make a claim using Chargeback, customers must contact the card issuer,
which then contacts the company’s payment-processing bank to reclaim the
money. You should receive your money even if the company that sold the goods
has gone bust.
Unlike section 75, there is a 120-day time limit on Chargeback claims, which
starts from the day that you become aware of a problem or, in the case of
something like flights with an airline that goes out of business, from the
day that the flight was to depart.
To claim compensation using section 75 or Chargeback, you must prove breach of
contract. This is clearcut if the goods or services were not delivered, but
it is not so straightforward if you are claiming that the goods were not of
a satisfactory quality or not as described.
If the dispute boils down to a question of taste, or simply to disappointment
with the goods or services, a claim is unlikely to be successful. The FOS
reports the case of a woman who made a claim because her new haircut, paid
for by credit card, did not suit her. Unsurprisingly, the claim was rejected.
Do not give up if a claim is turned down. If you experience difficulties,
contact Citizens Advice (www.citizens advice.org.uk), Consumer Direct
(consumerdirect.gov.uk) or Which? Legal Service (whichlegalservice.co.uk).
Your card company has eight weeks to respond to a complaint. If it fails to do
so, or rejects your complaint, you can take your case to the FOS. Visit
financial-ombudsman.org.uk or call 0845 0801800.
Case study: “Barclaycard gave us the brush-off”
Richard Mack and his wife, Helen, both 34, considered taking Barclaycard to
the small claims court for refusing to refund €1,215 (£1,000) that they paid
to a timeshare company.
In October 2007 the couple, from Liverpool, used their credit card to pay a
Gibraltar-based company called etoo. It said that it had a buyer for their
timeshare in Florida and that a deposit was needed as insurance.
However, the promised buyer never materialised and when the Macks tried to get
back their deposit the company failed to return their calls. This prompted
them to contact their card provider, Goldfish, which said that they would be
able to file a section 75 claim if their deposit wasn’t returned after 12
months. They waited patiently and in November went back to Goldfish, which
was now owned by Barclaycard. Last month Barclaycard rejected the claim,
arguing that there was no breach of contract.
Mr Mack, who works in the car industry, says: “They gave us the brush-off
after making us wait for six months.”
However, last week, after The Times intervened, Barclaycard agreed to a
refund.
How to make a claim
• First write to your card provider. Include related paperwork and state that
the provider is liable for your claim under section 75 of the Consumer
Credit Act.
• You have six years (five in Scotland) from the date of the breach of
contract — when the seller failed to provide the goods — to make a claim.
• If your claim is rejected, you have six months to complain to the Financial
Ombudsman Service (financial-ombudsman.org.uk). You can also complain to the
FOS if the card company does not deal with your claim within eight weeks.
