Credit Cards – Common misunderstandings about claims made under Section 75 of the Consumer Credit Act 1974
We receive a significant number of complaints that involve Section 75 of the Consumer Credit Act 1974. Under Section 75, in certain circumstances, the provider of credit is equally liable with the provider of goods or services in cases where there has been misrepresentation or a breach of contract.
As we have noted in previous issues of ombudsman news, the cases referred to us often reveal misunderstandings – on the part of credit providers as well as on the part of consumers – about what exactly Section 75 covers. The following case studies illustrate some of the more common misunderstandings we continue to see in connection with claims made under Section 75.
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 – Common misunderstandings about claims made under Section 75 of the Consumer Credit Act 1974
Case Study 86/01 : Card provider refuses claim made under Section 75 for 'misrepresentation'
Mrs J's complaint concerned a payment she made over the phone using her credit card. She was keen to sell the timeshare in a holiday property that she and her late husband had bought some years earlier. She had therefore contacted a company that said it specialised in such sales. After a lengthy phone conversation with a sales representative, she used her credit card to pay the company £700.
Mrs J said she had understood from her conversation with the sales representative that the company already had a specific buyer lined up for her property. She said the representative had told her several times that it was a 'guaranteed sale' – and that she needed to pay £700 to meet the costs of completing that guaranteed transaction.
When she received the written contract a few days later, however, she saw that the terms differed from those she had agreed over the phone. In particular, there was no reference to any 'guaranteed sale', simply a statement that the company would 'endeavour' to sell her timeshare. Mrs J wrote to the company asking it either to confirm that it already had a genuine buyer or to cancel the transaction and refund her fee. In its response, the company told her it could 'not guarantee to find a buyer.' It also said it was unable to refund the fee and that Mrs J was 'bound by the terms of the written contract.'
After a further unsuccessful attempt to cancel the transaction and get her money back, Mrs J made a claim to her credit card provider under Section 75 of the Consumer Credit Act. The card provider accepted what she said about how the timeshare company misled her into making the payment. But it said it was unable to meet her claim because Section 75 only covered written misrepresentations. The misrepresentation in this case had been made over the phone. Unable to resolve the matter and get her money back, Mrs J brought the complaint to us.
The card provider was unable to produce any legal authority for its claim that Section 75 only covered written misrepresentations.
Mrs J provided credible evidence, including detailed hand-written notes that she said she made at the time of the phone conversation. We saw no reason to doubt that she had only agreed to pay the £700 fee because the company said it had a specific, guaranteed buyer for her timeshare.
We told the card provider we did not agree that Mrs J was unable to claim under Section 75. We said it should refund Mrs J's £700 and add a payment of £100, to reflect the inconvenience she had been caused by its failure to deal with the matter correctly.
Case Study 86/02 : Consumer misinterprets the financial limits that apply to claims made under Section 75
Miss L entered into an agreement to buy a holiday apartment on a new development in Cyprus. The apartment cost €125,000 and she was asked to pay a deposit of €5,000. She did this using two credit cards; one to pay €3,000 and the other to pay €2,000.
She said the developer had assured her that a Cypriot mortgage company would provide a loan 'on guaranteed terms' for the remainder of the purchase price. But shortly after she had signed the agreement and paid the deposit, the mortgage company told her it was only willing to lend up to 60% of the purchase price. Miss L could not afford to proceed, so she lost her deposit.
After discussing the situation with a colleague, she became convinced that the property developer had colluded with the mortgage company in making false promises about the mortgage, in order to get her to pay a deposit.
On her colleague's advice, Miss L contacted the providers of the two credit cards she had used. She outlined what had happened and said she was making a claim under Section 75, on the basis of misrepresentation by the property developer.
Neither of the card providers was willing to refund the payment Miss L had made to the developer. And both of them insisted that her transaction was not covered by Section 75. They said this was because the total cost of the apartment exceeded £30,000 – the maximum limit under Section 75 for the cash price of the goods or services bought.
Miss L thought this was unfair. She argued that her claim related to the deposit she had paid, not to the total purchase price of the apartment. As neither of the card providers would reconsider her claim, she then brought a complaint to us.
Complaint Not Upheld
We could understand why Miss L had thought the dispute was about the €5,000 that she had paid for the deposit. However, what she had bought was not that deposit. She had bought an apartment, and had paid a deposit of €5,000s towards the €125,000 price of her apartment.
For Section 75 to apply, it is a requirement that – among other things – the cash price of the goods or services bought must be no less than £100, and no more than £30,000. As €125,000 was considerably more than £30,000, it was clear that Section 75 did not apply. So we told Miss L that the card providers were not under any liability to refund the money she had paid as a deposit on the apartment.
Case Study 86/03 : Credit card provider misinterprets the financial limits that apply to claims made under Section 75
Mr M started making regular trips to northern France to visit his elderly mother, after her health began to deteriorate. He bought a 'frequent traveller' voucher offered by the channel-ferry company he used.
The voucher cost £220 and covered a total of ten separate channel-crossings. This worked out cheaper than paying separately for each trip. After Mr M had used the voucher for just three crossings, the ferry company went into administration. His voucher was not accepted by any other ferry company, so Mr M had to pay a different company €119 (at that time the equivalent of £102.31) in order to get home from France. He subsequently bought a carnet from that company, valid for six crossings, to replace the remaining crossings on his original voucher.
The carnet cost Mr M £192 and he calculated he had paid a total of £294.31 for trips that would have been covered by his original voucher, if the company concerned was still in business. As he had paid for the voucher by credit card, he put in a claim to the credit card provider under Section 75.
The card provider told Mr M that although he had used just three of the ten crossings covered by his voucher, it would 'refund the cost of eight crossings' (£174) to his account.
Mr M had claimed £294.31, so he was not happy to be paid less than that amount. When he complained to the card provider it said it considered it had already made a 'more than generous offer, in the circumstances.' This was because 'the individual cost of the crossings bought with the voucher was less than £100, which is the minimum level for Section 75 to apply.' Unable to make sense of this, Mr M came to us.
We looked at copies of the paperwork Mr M had sent the card provider, in connection with his claim. These documents showed clearly that what Mr M had bought from the ferry company had been a voucher costing £220 – not ten individual crossings each costing £22.
So we did not see why the card provider had argued that Section 75 did not apply. The ferry company had clearly been in breach of its contract with Mr M. And the evidence showed that Mr M had made every effort to minimise his loss by obtaining the best deals he could get when paying for the crossings that were no longer covered by his voucher.
We agreed with Mr M that the card provider was liable, under Section 75, to make good his total loss of £294.31. We said the card provider should also pay him £100, to reflect the inconvenience he was caused by its failure to accept the clear legal position under Section 75.
Case Study 86/04 : Consumer claims refund on grounds of misrepresentation by carpet salesman
Mrs B was so disappointed with her new carpet, once it was fitted in her living room, that she asked for a refund. She said the carpet 'spoiled the look' of the room. The carpet's overall appearance was not at all as she had expected and the colour appeared to be 'patchy' in places.
Mrs B had paid for the carpet by credit card so she applied to the card provider for a refund of £570, the full price she had paid. She said this was 'a clear case of misrepresentation' as the salesman had not warned her that the actual carpet – when fitted – would look markedly different from the sample she had seen in the showroom.
The card provider refused to refund her money as it did not agree that there had been any misrepresentation. Mrs B then complained to us.
Complaint Not Upheld
We were satisfied, from the evidence provided by Mrs B, that the carpet was not faulty in any way. It was a normal feature in carpets of this particular type for the pile to appear to have variations in shade, depending on which way each tuft, and the light, fell.
Legally, a 'misrepresentation' is an untrue statement of fact (which can be made by words or conduct) that causes someone to enter into a contract. From looking at the carpet sample in the showroom, Mrs B may not fully have appreciated how the carpet would look when fitted in her home. But we did not agree with her that the salesman's failure to 'warn' her about this amounted to misrepresentation. So we said that the card provider was not liable to Mrs B for the cost of the carpet.
Case Study 86/05 : Credit card provider misunderstands the extent of its liability under Section 75
As a wedding anniversary present for her parents, Mrs K paid for them to join her and her husband, together with their two children, on a holiday in Florida. She used her credit card to buy six return flights, at a total cost of £2,890.50.
Just a few days before they were due to fly back at the end of their holiday, the family learned that their airline had gone into receivership. In order to get home, Mrs K had to book flights with a different airline – at a total cost of £1,980.60.
Once they were home, she made a claim to her credit card provider, under Section 75, for the cost of the flights from the USA. In due course the card provider refunded £1,349.25 to her account.
Unhappy at receiving less than the amount she had claimed, Mrs K complained to the card provider. It told her the amount it had credited to her account was the exact amount it had recovered from the failed airline. It said the airline had confirmed that this sum 'represented the portion of the original payment that was attributable to the return flight'.
Mrs K thought it was unfair to simply refund her the cost of the unused portion of her original tickets. However, the card provider was not prepared to reconsider the matter, so she brought her complaint to us.
The failure of the airline with which she had booked return flights meant that Mrs K was obliged to buy tickets from a different airline to get her family home from their holiday. It was clear from the evidence that she had paid a reasonable price for these tickets.
The card provider's liability to Mrs K under Section 75 was not limited to passing on any refund it was able to obtain from the airline. The card provider was also liable to her for the additional costs she had reasonably incurred as a result of the airline's breach of contract.
The flights from the USA had cost Mrs K £1,980.60, so the card provider's refund still left her out of pocket by £631.35. We upheld the complaint and told the card provider to pay her this amount.
Case Study 86/06 : Consumer complains that credit card provider only partially met a claim made under Section 75
While Mr and Mrs A were visiting the USA they learned that the airline on which they had booked return flights was in serious financial difficulties and had suspended all its operations.
The couple booked flights home with a different airline and returned two weeks later than first planned. Mr A had bought the original return flights with his credit card, at a total cost of £950.40. He made a claim to his card provider under Section 75 for a total of £1,130.50. He said this included the cost of their flights home, together with the additional accommodation and other expenses 'made necessary' because of the airline's failure.
The card provider agreed to pay the part of Mr A's claim that related to the cost of the flights home. However, it refused to pay the remainder of his claim, so Mr A referred his complaint to us.
Complaint Not Upheld
We asked Mr A why he and his wife had spent two more weeks in the USA than they had originally planned. He said they would not normally have considered staying away so long. However, they had thought it was 'reasonable' to extend their trip 'as compensation for the inconvenience' caused by the airline's failure.
We also asked about the additional expenses Mr A had claimed – and why he had not been able to provide receipts for all of these expenses. Mr A said that for most of their extended stay they had been able to use a private house owned as a holiday home by the parents of one of his wife's friends. Although Mr A and his wife had paid to stay in the house, they felt they could not ask for a receipt without 'suffering great embarrassment.'
We were not satisfied, from Mr A's evidence, that the airline's failure had obliged him and his wife to remain in the USA for an extra two weeks. They had originally intended to spend four weeks in the USA, and the airline's failure had occurred early on during their stay. So there seemed no obvious reason why they could not simply have obtained flights home with a different airline for their original return date.
We accepted that it was only because of the airline's failure that the couple decided to extend their stay in the USA. But that did not make their additional accommodation and associated costs a necessary consequence of the airline's breach of contract. They would have needed to demonstrate that in order to claim for these costs under Section 75.
The card provider had dealt promptly with Mr A's claim for the additional flight costs. We decided that it was not liable to him for any of the additional expenses he had claimed.
Case Study 87/07 : Consumer claims for refund of payments made in connection with the re-sale of his timeshare
Mr D received an unsolicited phone call from company A. It said it was aware he was thinking of selling his timeshare on an apartment in Cyprus and it had a buyer who was prepared to offer £7,167 for it.
Mr D agreed to go ahead with the deal and to pay a fee of €900 to cover company A's costs in arranging it for him. Company A asked him to pay the fee by credit card to a separate company ('X Holiday Club'). Shortly afterwards, Mr D received a contract in the post from company A. This confirmed what had been agreed over the phone.
Several months passed but Mr D heard no more from company A and had no response to his letters and phone calls. Unexpectedly, he was then rung up by someone who said he worked for a company called 'Y Marketing'. The caller said his company knew about Mr D's experience with company A and would help him to get his money back. In order to do this, however, it would need details of the credit card Mr D had used for the transaction. Mr D provided this information over the phone and was told that Y Marketing would get back to him in a few weeks.
He was still waiting to hear from Y Marketing when he received his credit card statement and saw that Y Marketing had debited his card with £974.86. Mr D then contacted his card provider, citing Section 75 and claiming back the payments he had made to X Holiday Club and to Y Marketing.
The card provider refused to refund either of these payments – and it sent Mr D copies of two documents that appeared to have been signed by him. One was a contract between him and Y Marketing, authorising Y Marketing to charge him a fee of £974.86. The other document was a copy of a credit card slip for that amount.
Mr D insisted that he had never signed either of these documents – nor had he ever seen them before. But the card provider said there was no evidence that he had not entered into the contract with Y Marketing. As the card provider was unwilling to refund either of Mr D's payments, he brought his complaint to us.
Complaint Upheld In Part
Mr D's complaint involved two separate transactions on his credit card account, so we needed to consider them separately. In the case of the payment he had made to X Holiday Club (as instructed by company A), we saw that there was a problem. Section 75 would only apply if the two companies were 'associates' – a word which has a specific legal meaning for this purpose. However, we were unable to find any evidence that the two companies were associates, in the way the law required them to be. So we said the card provider could not be held liable, under Section 75, for that payment.
The situation was different for Mr D's payment to Y Marketing. He provided sufficient information to convince us that his account of what Y Marketing told him over the phone was accurate. This meant that, quite apart from any claim he could have made under Section 75, he had never given his consent for the payment in the first place. We therefore told the card provider to refund it.
Case Study 87/08 : Card provider refuses to consider claim under Section 75 until consumer has first pursued the matter direct with the supplier
Miss V used her credit card to buy a dinner service from a homeware website. When it arrived, she was disappointed to find that it was not a properly matching set. Each item was decorated with an identical design, apart from two of the plates. These were decorated in a way that was similar to the rest of the set – but that had some noticeable differences.
She emailed the supplier and asked it to exchange the dinner service for one that comprised matching items. The supplier told her it was unable to do this. It had sold out of sets in the design she had ordered and was unable to obtain further stocks. It offered instead to exchange her dinner service for anything that totalled the same price (£199) and that was currently available on its website.
Miss V did not see anything else on the website that she liked, so she asked for her money back. The supplier repeated its offer to exchange the dinner service for something else but it refused to give her a refund.
As Miss V had paid for the dinner service by credit card, she wrote to her card provider. She explained what had happened and asked for a refund, under Section 75. She enclosed copies of her email exchanges with the supplier, as well as photographs showing the differences between the non-matching plates and the rest of the dinner service.
The card provider told Miss V that it had no liability to her under Section 75. It said this was because she had 'failed to take sufficient steps to resolve the matter with the supplier.' She had also failed to return the dinner service to the supplier to show that she was 'formally rejecting it.' Miss V then referred her complaint to us.
We were satisfied, from the evidence Miss V had provided, that the dinner service was not a matching set. So she had not been given what she had paid for with her credit card. Under Section 75, she could seek redress from the supplier of either the goods or the credit.
We thought Miss V had taken reasonable steps to try to resolve matters with the supplier. Despite what the card provider appeared to believe, however, she was not obliged to have done this – or indeed to have returned the dinner service – before she could make a claim to the card provider.
We told the card provider that Miss V was not obliged to exhaust all possible avenues with the supplier before claiming under Section 75. And we said we could see no reason why it should not pay the claim. The card provider argued that if it gave Miss V a refund then she would still have the dinner set, as well as getting her money back. It did not think this was fair.
Miss V had already made it clear that she did not want to keep the dinner service. But we did not think it reasonable, in the circumstances, that she should be expected to arrange and pay for its return, particularly in view of its weight and fragile nature.
We told the card provider to refund the amount that Miss V had paid for the dinner service. We said that if it wanted her to return the dinner service then it should pay the courier costs and arrange a convenient time to have the dinner service collected from Miss V.