Here’s Everything You Need to Know About Section 75 Claims
Even though the legislation dates back almost 50 years, Section 75 of the Consumer Credit Act is still a vital force in international finance.
Section 75 played a significant role in shaping how eCommerce developed in Europe. The rule, less than 300 words in length, determines how billions of dollars get routed every year.
So, how does Section 75 affect your business?
In this article, we’ll discuss what Section 75 is, how it works, who it protects, who it holds liable, and what it does and doesn’t cover.
- Can Cardholders File a Chargeback on Credit Card Deposits?
- American Express Chargeback Time Limits: The 2022 Guide
- Chargeback Time Limits: the Merchant's Guide for 2022
- The Fair Credit Billing Act: The Basis of Chargeback Law
- Chargeback Law: What is the Truth in Lending Act?
- PSD2: How This Legislation is Changing the Face of Banking
Legislative Background for Section 75 Claims
Before 1974, different kinds of credit and lending were governed under a complicated system of overlapping regulations in the UK. This resulted in a lot of confusion and inefficiency.
The UK parliament put the Consumer Credit Act into law 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 will 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.
Chargebacks for Dummies
Chargebacks can wreak havoc on your cash flow and profitability. This book is your guide for preventing chargebacks and, when they happen, fighting them more effectively. Request your FREE paperback copy of Chargebacks for Dummies today!Send Me My Free Book!
What is Section 75 of the Consumer Credit Act?
- Section 75
Section 75 of the Consumer Credit Act is a piece of legislation adopted in the UK. It makes it possible for credit card companies to refund a cardholder or pay for expenses incurred by the cardholder, should they have a legitimate issue with a seller.
[noun]/*sek • SHən • se • vən • tē • fīv/
The stated purpose of Section 75 is to ensure credit card providers are jointly liable for any breach of contract or misrepresentation by a retailer or trader. This extended to sellers, as well.
The law differs from the US regulation in two highly significant ways:
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. This is six years in most of the UK and five years in Scotland.
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. If customers want their money back, they can go to the merchant and ask for a refund, or 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 the cardholder suffered. 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?
Section 75 of the Consumer Credit Act stipulates that credit card companies are 'equally liable’ if a consumer has an issue with anything they purchased with their credit card. The same is true if they have a problem with the company the item was purchased from.
Section 75 gives credit cardholders the right to file a dispute regarding a transaction of more than £100, but less than £30,000. Even if only a deposit were made via the credit card, the entire purchase would still be covered.
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). Here's the full text of the law:
Section 75: Liability of creditor for breaches by the 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 to have the supplier made a party to the proceedings in accordance with rules of court.
All the jargon can be confusing. So, in short, cardholders are covered by Section 75 if:
Their purchase didn't arrive.
The product or services were faulty or not in the condition described (this applies even if the description was verbal).
The company the product or service was purchased from is no longer in business.
In that last case, cardholders may also be able to claim for associated additional expenses incurred as a result of the closure. For example, a return flight home if an airline goes bust while they're on vacation.
It bears mentioning that only legitimate claims are covered by Section 75. If a merchant suspects the claim is a case of friendly fraud, they may choose to challenge the cardholder’s dispute. We’ll dive into this a bit deeper below. For now, though, let’s look at how Section 75 claims function.
How Does a Section 75 Claim Work?
Once a cardholder has identified a legitimate issue with a product or service, the next step is to contact the seller. The customer must give the merchant an opportunity to rectify the situation. Credit agencies will require evidence that the cardholder made this attempt, so it is wise to screenshot any conversations from both ends.
If that step fails, a cardholder may contact their credit card company’s customer service department. The cardholder should inform the representative that they intend to “make a claim under Section 75 of the Consumer Credit Act.” The cardholder will be asked to state what they purchased, from whom, when the purchase was made, and how much was paid.
The cardholder will also need to have these documents on hand:
- Proof of purchase
- Any terms and conditions governing the purchase
- Evidence that the goods or services were either not supplied, damaged, faulty, or not as described
- Evidence that they’ve already tried to recoup the loss from the retailer
- An explanation of what, if any, response the buyer received from the merchant
There’s no time limit set for your credit card company to refund your money. But, if you’re unhappy with how your bank handles the situation, you can file a complaint with the Financial Ombudsman Service. This entity can force the bank to respond and act.
When Does Section 75 Not Apply?
While most credit card transactions fall within the scope of Section 75, there are exceptional 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 things that 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 legislation is intended to protect consumers and merchants from bad disputes, to varying degrees. Unlike with chargebacks, merchants share liability for the disrupted transaction with issuers. This lends an added layer of liability protection that chargebacks simply lack.
Let’s discuss how these two laws differ in greater detail.
Section 75 VS Chargebacks
The biggest difference between Section 75 and chargebacks is the time limit.
The time limit for claiming a chargeback varies between 45 and 120 days. Specific time limits depend on the card network and the chargeback reason code. But, as we mentioned above, there are no set time limits for Section 75 claims.
Another difference is that chargebacks are not a legal obligation for card companies. It's a voluntary scheme that brands like American Express, Mastercard, Discover, and Visa have agreed to. Because chargebacks are voluntary and not a legal process, there’s no guarantee the cardholder will win.
Section 75 claims are, therefore, better for merchants and cardholders. Cardholders get their funds back, and merchants aren’t required to pay added chargeback fees which would otherwise add to their chargeback ratio.
That is not to say, however, that Section 75 claims are desirable.
The law is definitely skewed toward cardholders. Claims can still be misrepresented, miscommunicated, or even falsified entirely. Having said that, merchants should exercise caution when dealing with Section 75 claims, and plan accordingly.
Ask the Experts
The Consumer Credit Act is a complicated piece of legislation. Section 75 is just one small component 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.
Another complicating factor 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.
UK eCommerce is incredibly dynamic and fast-moving, but just like its US counterpart, the market 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 of the Consumer Credit Act? Click below and get connected with our team of global dispute regulation experts. There’s no time to waste.