Credit Cards – Disputes involving Section 75 of the Consumer Credit Act 1974
Each year, we receive a significant number of complaints that involve Section 75 of the Consumer Credit Act 1974 – under which, in certain circumstances, the provider of credit is equally liable with the provider of goods or services where there is a breach of contract or misrepresentation.
Up until now, almost all these complaints have involved credit card transactions (both at home and abroad). However, going forward we expect our work in this area to expand, reflecting our new consumer credit jurisdiction and the extension of our existing jurisdiction to include complaints about point-of-sale loans and store cards.
We often encounter some common misunderstandings when assessing these cases. The first is the belief among some lenders that consumers can only claim against them after they have first sued the provider of the goods or services. In fact, no such requirement exists and consumers can choose which party to claim against.
Where consumers come to us to check the position, we can point out the lender's mistake. But of course we cannot know how many consumers take the lender's assertion at face value and then spend time and effort trying to pursue a trader who may prove difficult to trace. If it seems to us that the lender has misled the consumer about the provisions of Section 75, and this has caused the consumer unnecessary expense or inconvenience, then this is likely to be reflected in any award we may make.
The second misunderstanding we frequently come across is the belief by some consumers that Section 75 entitles them to a refund on any purchase made with credit. Some consumers also confuse the rights given to them by Section 75 with the automatic insurance coverage that some credit card issuers provide.
For Section 75 to apply, in the first instance the following four conditions must all be satisfied:
- The cash price of the goods or services bought by the consumer must be over £100 and not more than £30,000.
- The amount of credit provided to the consumer towards the purchase must not exceed £25,000, and must have been provided to an 'individual' (which includes sole traders, small partnerships and unincorporated businesses, as well as ordinary consumers).
- The provider of credit must be in the business of lending money, and the credit agreement must have been made in the course of that business.
- The credit must have been provided to the consumer under pre-existing arrangements between the provider of credit and the supplier of the goods and services.
If all these conditions are satisfied, there is a 'lender-borrower-supplier' chain and the lender will have equal liability for misrepresentation or breach of contract by the merchant. There is no automatic entitlement to a refund under Section 75 where, for example, the customer has simply changed their mind.
In April 2008, the current maximum financial limit of £25,000 for regulated credit agreements will be removed. The effect of this has not been entirely understood by some consumers and consumer advisers, who have asked us to deal with claims in respect of much larger cash value purchases in 'anticipation' of unlimited Section 75 coverage next year. In fact, the cash price limits within Section 75 will not be affected by the changes in April 2008 – so we will still be unable to consider claims about purchases costing more then £30,000.
The following selection of recent Section 75-related case studies illustrates some of the issues we have had to decide.
Case Studies
The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.
Credit Cards – Disputes involving Section 75 of the Consumer Credit Act 1974
Case Study 62/01 : Dispute over the return of a deposit for a car hire contract
Mr M hired a luxury car for the weekend. He said that when he booked the car, by phone, he was asked to pay a £1,000 'holding' deposit that would be refunded in full when the car was returned undamaged. He paid this with his credit card.
Mr M returned the car in good order at the end of the hire period, and said he was told the deposit would be refunded in full within a month. However, that did not happen and when he contacted the hirer he was told that his £1,000 was 'forfeit' because he had returned the car a day late.
Mr M disputed this. He pointed out to the hirer that even if he had returned the car late, under the contract he would be liable only for a further £115 daily charge – not £1,000. However, the hirer still refused to refund the £1,000 so Mr M contacted his credit card provider.
The credit card provider said it was unable to help. It told Mr M that it did not accept any liability under Section 75, and that, in any event, Mr M had not produced sufficient evidence to show he had returned the car on time. Mr M then referred the dispute to us.
Complaint Upheld
We looked at the written contract that Mr M had entered into with the hirer. This made no mention of the terms on which the £1,000 deposit had been paid. There was nothing to suggest the deposit would be forfeited if the car was returned late.
The contract did say that an extra £115 would be payable for each day or part day that Mr M delayed returning the car. However, Mr M provided credible information backing up his claim to have returned the car on time.
Mr M's evidence about what he had been told by the hirer when booking the hire was consistent and convincing, and we accepted that he had paid the deposit on the basis of an assurance that it would be refunded once he returned the car undamaged.
We found that the card provider was liable under Section 75 and we said it should refund Mr M the £1,000 deposit. We also told the card issuer to adjust the interest on Mr M's credit card account, so that he was not out-of-pocket because of the delay in returning the deposit.
Case Study 62/02 : Consumer makes purchase of land in her sole name but using the additional card she was given on her husband's credit card account
Mrs L negotiated with a land-holding company to buy a plot of land. She said she agreed to buy the land on the basis of a spoken assurance from the company that she would be able to obtain planning permission for the plot.
After completing the purchase, Mrs L discovered from the local authority that she was unlikely ever to get planning permission to develop the land. As she had used a credit card to pay the deposit, Mrs L considered that the credit card provider was liable to her under Section 75 for the cost of what she now considered to be 'worthless' land. However, the card provider disagreed, so Mrs L brought her complaint to us.
Complaint Rejected
Mrs L had bought the land in her sole name, intending to develop it as her own project. But she had paid the deposit by using a credit card account in her husband's sole name. Even though her husband had allowed her to have an additional card (carrying her own name) on the account – the account itself was in Mr L's name and it was Mr L – not his wife – who had had been provided with credit.
Because of that, the linked 'chain' of lender, borrower and supplier required for Section 75 to operate was not present, so we could not uphold Mrs L's claim against the credit card provider.
Case Study 62/03 : Dispute involving the quality of workmanship in kitchen refurbishment paid for by credit card
Mr H was extremely disappointed with the expensive polished granite worktops he bought from a retailer who specialised in designer kitchens. He felt the worktops had been poorly cut and badly finished.
After trying unsuccessfully to get the retailer to put matters right, Mr H decided to make a claim to his credit card provider under Section 75. He had paid for the worktops – and for their installation – with his credit card.
The credit card provider told Mr H that it could not accept his claim, as it did not consider that poor workmanship constituted a breach of contract. Mr H then referred the dispute to us.
Complaint Upheld
Mr H sent us detailed photographs of the fitted worktops and we agreed that they were unsatisfactory. Not only did they not fit properly into the space they had been cut for, but they were not functional – since they were not level. They were also very clearly marked with grooves and scratches where the workmen had tried to force them into place.
In law, Mr H was entitled to assume that the terms of the contract included an agreement that the worktops would be supplied and fitted to a satisfactory standard, taking into account the price and description. So we were satisfied that – contrary to what the credit card provider believed – there had been a breach of contract.
Mr H said he had looked into the cost of putting right the problems with the worktops and had received a quotation of £1,200. He wanted his credit card provider to cover that cost, and we thought that was fair in the circumstances. When we explained our views to the credit card provider – in particular that there had indeed been a serious breach of contract – it agreed to meet the costs, once Mr H supplied the written quotation.
Case Study 62/04 : Dispute involving electronic goods bought abroad using a credit card
At the start of his holiday in Spain, Mr J used his credit card to buy a digital camera with electronic accessories. He later told us that towards the end of his holiday he realised the camera was not as good as he had expected, and did not have all the features the retailer had described to him. He therefore returned to the shop and asked for his money back, but the retailer refused and became abusive.
Once Mr J got home, he wrote to his credit card provider and asked for a refund under Section 75 – saying he had bought the camera on the basis of a misrepresentation by the retailer. The card provider said it was unable to help, so Mr J referred the matter to us.
When the bank refused to meet his claim, Mr J came to us. He said he had been told that under Section 75 he was entitled to a refund from his credit card company.
Complaint Rejected
Mr J was able to argue that Section 75 applied in this case because of a decision of the Court of Appeal in March 2006 that transactions made abroad are covered by Section 75. Pending a final decision on the matter by the House of Lords, this represents the current legal position.
During our investigation of the complaint, we asked Mr J some questions about his second visit to the retailer to return the camera. We had noticed from his credit card statement that on the same day he had made another – larger – purchase from the same retailer.
Initially, Mr J was reluctant to discuss that purchase. Eventually he told us that he had bought a more expensive digital camera. He was unable to explain why he had bought another camera from the same retailer he had accused of misleading him about the first camera, and of later becoming abusive.
After considering the evidence, we thought it unlikely the first camera had been sold on the basis of a misrepresentation. From what Mr J told us, it seemed more likely that having initially bought a cheaper camera, he had changed his mind and decided he would prefer the more expensive one. He had returned to the retailer hoping for a refund of the cost of his initial purchase when he bought the second camera. We rejected the complaint.
