Credit cards come with added legal protection but there are some loopholes leave you out of pocket if things go wrong
Section 75 of the Consumer Credit Act says the credit card company is jointly and severally responsible along with the retailer if something goes wrong with purchases of more than £100 and less than £30,000.
So if you buy something that doesn’t arrive, order a service from a company that goes bust, receive something that isn’t as it was described or find a purchase is just plain faulty, you can pursue a claim with the credit-card company as well as the retailer to get your money back.
In fact, you don’t even need to bother with the provider of the goods or service. Since the liability is equal, you can just go to the credit-card company – particularly handy if the company has gone under or you aren’t getting a response from the retailer. And since it’s a legal ruling, the credit card provider can be forced to cough up.
Although the minimum value of your purchase needs to be £100, you can actually pay as little as a penny on a credit card as a deposit to get the cover, and it applies to purchases made both in the UK and overseas.
Section 75 doesn’t just apply to credit cards either. It covers store cards and credit agreements for purchases, such as a car, as long as it’s specifically for that item and not an all-purpose loan.
You’re able to claim even if you’ve subsequently closed down your credit card account, and in theory you can make a claim up to six years after your purchase as that’s the statute of limitations in the UK (five years in Scotland).
There’s even the potential to ask for consequential losses, such as the higher costs of new return flights after an airline failure midway through a holiday.
However, there are also a number of grey areas surrounding Section 75. These open up loopholes that allow credit-card companies to reject claims. From April 2018 to March 2019, the Financial Ombudsman received approximately 4,100 complaints from customers appealing against the decision. And even then, close to only half of these were upheld.
Here are some of the reasons a claim may be rejected, and where possible, the actions you can take to mitigate your loss.
The single-item loophole
Something that often catches people out is what constitutes the £100 minimum. It’s not based on your total spend with the retailer in a transaction – instead, it’s per single item.
So if you buy four of the same item at £30 each, although you’ve paid £120 to the retailer, you won’t be covered.
But if there was a multipack of those same items that came in at £100, then you would be covered.
Transport such as train and airplane tickets is one to really watch here, with two singles – one outbound and one return – which are less than £100 each not providing the same protection as a return ticket that costs more than £100.
The third-party loophole
For Section 75 to hold water there needs to be a direct relationship in place between the person making the purchase (aka the debtor), the credit-card company (aka the creditor) and the retailer (aka the supplier).
The problem arises when a third party is added in between the creditor and the supplier – and this happens far more often than you would think, as the folowing examples show:
Buy something sold by Amazon and you’ll get your cover. But Amazon isn’t just an online retailer, it’s a marketplace, giving other merchants a platform to sell their goods. So if you buy something sold on Amazon but by one of these companies, you’re actually paying Amazon as a go-between, which passes on the money. This means that you are breaking the chain and Section 75 doesn’t apply.
It’s the same for using other marketplace retailers such as eBay, Groupon or Etsy. It’s worth seeing if these companies also sell direct on their own websites instead, although be aware that buying from private individuals via any website isn’t covered at all.
Third parties also factor heavily when booking all or part of your holidays. According to ABTA only 47% of people book their holiday directly with the airline or hotel.
That means that everyone else is going through a booking website or travel agency.
So if you book and pay for your tickets and rooms with any of the popular websites such as Expedia, Skyscanner and Booking.com, you could end up losing out in the event of something such as airline failure.
It could be worth buying direct from the airline or hotel, even if it costs a few quid more, to ensure you have that cover.
Whether it’s a play, sporting event or gig, the only guarantee you’ll get that the chain is in place is if you buy direct from the venue. But who does that? Most of the time, particularly for concerts, we’re buying from websites such as Ticketmaster and See Tickets. These agencies may be authorised to sell the tickets, but they are still acting as an intermediary.
Many of these third-party agencies and companies will have their own alternative protections in place, so it’s worth checking for these when booking. For example, with holidays you can look for ATOL or ABTA protection.
The additional cardholder loophole
Some credit-card holders have an extra card for their partner – a particularly useful trick to employ if you have a rewards or cashback card. However, using one means there’s a break in the contract between the account holder and the rest of the chain.
Any claim via one of these supplementary cards would need to show that the main cardholder has benefited from the purchase, therefore reinstating the chain.
The payment method loophole
This loophole concerns the way you pay – something that is becoming more relevant as technology changes how we use our credit cards.
Using a contactless card doesn’t break the chain, nor does using one via a digital wallet on your phone such as Apple Pay. With both you’re still directly using your credit card to make your purchase.
However, other digital payment systems instead take your money, then pass it on. PayPal is one of these, which means Section 75 won’t count if you use it. Another that is a de facto intermediary is smart-card Curve, which allows you to use a single card for purchases, but actually charges the payment to one of any number of underlying cards.
Both PayPal and Curve do have their own protection schemes in place that, though not legal requirements, are worth pursuing. And since the Curve card is a Mastercard, it also comes under the Chargeback scheme (see box, right).
The payment processor loophole
The final loophole is probably the most complicated and frustrating as there could well be a hidden intermediary. It comes down to who is processing your transaction, whether on a website or even a card terminal in a shop. Though this shouldn’t make a difference to Section 75 rights, it could. And it’s practically impossible to identify if there is an added third party.
Though you can avoid most of the other loopholes by going direct, you can’t really mitigate against this one. If something does go wrong and your Section 75 claim is rejected by your credit-card company for this reason, take it to the Financial Ombudsman. However, there’s no guarantee they will change the outcome.