How Section 75 Could Affect Your Chargeback Liability
Section 75 of the Consumer Credit Act: it’s just one brief item in a major body of consumer credit legislation dating back to 1974. If you’re thinking that it doesn’t sound like a particularly important—or interesting—piece of legislation, though, you’re dead wrong.
Section 75 has played a major role in shaping how eCommerce in Europe has played-out. The rule, which is less than 300 words in length, determines the fate of BILLIONS of dollars every year.
What is Section 75?
Before 1974, different kinds of credit and lending were governed under a complicated system of overlapping regulations, resulting in a lot of confusion and inefficiency. The Consumer Credit Act was put into law by the UK parliament in response to this issue. It’s essentially a British counterpart to the Truth in Lending Act, a US federal law dating back to 1968.
Both pieces of legislation are expansive and complicated. However, we’re going to focus specifically on Section 75 of the Consumer Credit Act, which has more in common with the US Fair Credit Billing Act, a 1974 amendment to the 1968 ruleset.
Section 75 gives credit cardholders the right to file a dispute regarding a transaction between £100-30,000. However, the law differs from the US regulation in two extremely significant ways:
- There is no time limit for Section 75. The only time restriction for a customer to file a claim is the statute of limitations under British law, which is six years in most of the UK, and five years in Scotland.
- Shared liability. Section 75 stipulates that issuers and merchants can be held responsible for a transaction dispute, rather than just the merchant (as is the case in the US).
Because the issuer enabled the transaction, the law holds them accountable for everything that happens. If customers want their money back, they can go to the merchant and ask for a refund, or they can go to the bank…it’s ultimately their choice. Depending on the circumstances, the bank might be responsible for additional costs like statutory interest and any financial loss suffered by the cardholder, too.
Of course, the issuer can then recoup their losses from the merchant when appropriate…but things don’t always work out as intended.
What is Covered Under Section 75?
Like the General Data Protection Regulation, Section 75 applies to both domestic UK transactions and cross-border sales. Any consumer located in the UK is protected under the rule, regardless of the merchant’s or issuer’s location. As a result, the rule offers consumers very strong protection both at home and abroad, and in both physical and digital channels.
Here is the full-text of the legislation:
Section 75: Liability of creditor for breaches by supplier.
(1) If the debtor under a debtor-creditor-supplier agreement falling within section 12(b) or (c) has, in relation to a transaction financed by the agreement, any claim against the supplier in respect of a misrepresentation or breach of contract, he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor.
(2) Subject to any agreement between them, the creditor shall be entitled to be indemnified by the supplier for loss suffered by the creditor in satisfying his liability under subsection (1), including costs reasonably incurred by him in defending proceedings instituted by the debtor.
(3) Subsection (1) does not apply to a claim—
(a)under a non-commercial agreement,
(b)so far as the claim relates to any single item to which the supplier has attached a cash price not exceeding £100 or more than £30,000, or
(c)under a debtor-creditor-supplier agreement for running-account credit—
(i)which provides for the making of payments by the debtor in relation to specified periods which, in the case of an agreement which is not secured on land, do not exceed three months, and
(ii)which requires that the number of payments to be made by the debtor in repayments of the whole amount of the credit provided in each such period shall not exceed one.
(4) This section applies notwithstanding that the debtor, in entering into the transaction, exceeded the credit limit or otherwise contravened any term of the agreement.
(5) In an action brought against the creditor under subsection (1) he shall be entitled, in accordance with rules of court, to have the supplier made a party to the proceedings.
Though all the jargon can be confusing, the rule’s effects are pretty straightforward: the law applies to any specific goods or services purchased using a credit card, in whole or in part--so long as the amount is at least £100.
For example, let’s assume a UK couple pays £5,000 for cabinets, countertops, and other furnishings to remodel their kitchen. The couple puts a £150 deposit on their credit card and pays the rest by check, but the merchant involved goes out of business before they can deliver the furnishings. Because the first £150 was paid by card, Section 75 stipulates that the issuer must refund the full £5,000, regardless whether they can recover it from the merchant or not.
You should note that Section 75 of the Consumer Credit Act applies to credit card transactions ONLY. A transaction made using any other payment method, including a check, debit card, or a charge card, which does not ALSO involve at least £100 being paid by credit card, will not be covered under Section 75. The law won’t apply to what would otherwise be a prepaid card chargeback, either.
In the example mentioned above involving the kitchen furnishings, it’s the £150 deposit that makes the entire transaction eligible…NOT the £4,850 paid by check.
Other Special Exceptions to Section 75
While most credit card transactions fall under Section 75’s authority, there are special circumstances in which the law doesn’t apply:
Credit not associated with a given purchase
The credit extended by an issuer must be directly related to a specific purchase. A purchase made with money provided by a personal loan, for example, is not covered.
Only transactions authorized by the cardholder are covered. So, if an unauthorized child, spouse, or other relative or friend made the purchase, then the transaction is not protected by Section 75.
Only arrangements between the issuer and the merchant are protected. Third parties, such as Amazon Marketplace resellers, are not covered, though other conditions may apply to OTAs with a registered ATOL (Air Travel Organizer’s License).
The transaction must involve a single item costing between £100-30,000. A sale with two items that each cost £80 would not be covered, but a transaction with one item costing £120 and one item costing £40 would.
Cash sourced from a credit card
There must be a direct link between the source of credit and the purchase, even if a credit card is the source of funds for a transaction. It won’t cover transactions in which the buyer withdraws cash from an ATM, for example.
The rule protects private individuals, rather than businesses or other organizations. Thus, Section 75 protection does not apply to transactions made using a business credit card.
The Consumer Credit Act is a complicated piece of legislation; Section 75 is just one small part of it. Incorrectly interpreting any portion of the regulation can have serious consequences for the business that conducted the transaction and the bank that enabled it.
Complicating matters is the fact that the legislation is more than four decades old. The drafters of the original Consumer Credit Act never anticipated the internet or the rise of the digital marketplace.
eCommerce is incredibly dynamic and fast-moving, but the UK eCommerce market—just like its US counterpart—is built on a static, slow-moving policy foundation. That’s bad news, as runaway Section 75 claims mean both merchants and issuers can experience:
- Reputational damage resulting from declined valid claims
- Cash-flow shortages due to a sudden spike in disputes
- Long-term revenue loss from sustained filings
Have additional questions about protecting your business from unintended effects of Section 75? Click below and get connected with our team of global dispute regulation experts. There’s no time to waste.