Paid by Credit Card?... think you’re covered?..perhaps not!

The_Big_Bamboo

Firstly, apologies if this has already been covered on here;…I’ve searched but I can’t see anything.

Er’indoors recorded a ‘consumer’ programme on BBC the other day and it concerned a man who’d bought a £1000 item by credit card ‘online’ from a well established UK company.

Unfortunately the retailer went bust and the buyer did not receive his goods. He made a claim to the Credit card company but they refused his claim saying ‘section 75 of the Consumer credit act’ didn’t apply.

I’ve always believed that any purchase between £100 & £30,000 is fully indemnified by the Credit card companies;….however, it appears that isn’t necessarily the case.

On-line purchases that are transacted through perfectly legitimate ‘3rd Party Processors’’ can evidently be conducted in two different ways;…if the transaction is completed in a ‘single stage process’ it passes from the buyer seamlessly through the ‘3rd Party Processors’ and thence to the seller. This type of purchase IS indemnified by section 75.

If the transaction is completed in a ‘two stage process’ it passes from the buyer to the ‘3rd Party Processor’ and thence a separate transaction from the ‘3rd Party Processor’ to the seller. This type of purchase IS NOT indemnified by section 75 and offers the buyer NO protection!

However, the buyer, at the point of ‘online’ purchase, has no way of knowing how the transaction will progress. :huh:

Is it a direct purchase with the seller,…which IS indemnified by section 75?
Is it a ‘single stage process’ purchase through a ‘3rd Party Processor’,…which IS indemnified by section 75?
Is it a ‘two stage process’ purchase through a ‘3rd Party Processor’,…which IS NOT indemnified by section 75?

A consumer ‘expert’ on the TV show said that we should all ‘check’ with ‘sellers’ which type of ‘transaction’ they use before making a purchase. She didn’t elaborate further;….easier said than done, IMHO. The consumer ‘expert’ also said it was a loop-hole in the law that’s unlikely to be ‘plugged’! Cold comfort indeed.

Even if one is able to make contact with an online retailer would they volunteer confidential ‘financial’ information of that nature ?...perhaps,…perhaps not.

As someone who makes numerous high-value ‘online’ Credit card purchases I have to say I was somewhat disconcerted by this programme;...the TV show was very short on detail tbh.

Anyone know how prevalent this type of ‘two stage 3rd Party Processor’ payment regime actually is?....anyone fallen foul of this type of transaction?

P.S. sorry for the length of my essay, but it’s an important issue;…it is to me anyway!:)

Biggles

Covered by MSE, and in various discussions on this forum, several times over the years

https://www.moneysavingexpert.com/credit-cards/PayPal-Section75

The_Big_Bamboo

Biggles wrote: »

Covered by MSE, and in various discussions on this forum, several times over the years

https://www.moneysavingexpert.com/credit-cards/PayPal-Section75

Thanks so much for that :T ;…so, even the mighty ‘PayPal’ (which I don’t use by the way!) can lead buyers into unprotected territory.

Any idea why retailers would use this 2 part transaction system rather than the single transaction system when availing themselves of ‘3rd party transaction services’,….it presumably(?) has financial implications for the ‘seller’. Of course, none of that is of any comfort if you are a buyer who gets stung!

I wonder if the Credit card institutions will do anything to plug this loophole;…after all, as a buyer it’s the credit card company that sends you the bill,… and charges you interest on said bill. Why should it matter how convoluted the payment route/system is?... the retailer still receives the money and the buyer is still responsible for repaying the debt back to the Credit Card company.

Perhaps the Credit card companies will act ‘for the good of the customer’ and amend this anomaly;…then again, perhaps pigs will fly.

Richey_

Yawn - old news, repeated a thousand times before...

Not the big headline news you are making it out to be.

Simple only use direct transactions not a third party

Biggles

The_Big_Bamboo wrote: »

…so, even the mighty ‘PayPal’ (which I don’t use by the way!) can lead buyers into unprotected territory.

I don't use PayPal either but I often still find it being used to process my payment to some online retailer. That would appear to be the problem.

eskbanker

The_Big_Bamboo wrote: »

I wonder if the Credit card institutions will do anything to plug this loophole;…after all, as a buyer it’s the credit card company that sends you the bill,… and charges you interest on said bill. Why should it matter how convoluted the payment route/system is?... the retailer still receives the money and the buyer is still responsible for repaying the debt back to the Credit Card company.

Perhaps the Credit card companies will act ‘for the good of the customer’ and amend this anomaly;…then again, perhaps pigs will fly.

I think if anything the card companies will seek to widen the 'loophole' rather than plug it!

Worth bearing in mind that the entire Section 75 protection mechanism within the Consumer Credit Act stems from 1974, when credit card use bore no resemblance to today's market as there were hardly any in circulation - the legislation wasn't intended to protect credit card customers as such (other credit agreements were the target population) and so its use in this way is a substantial and growing cost for card companies, who will see its applicability to card transactions in the first place as the loophole.

However, what is clear is that card companies will seek to limit their liabilities by sticking to the letter of the law, which demands the existence of a direct chain between Debtor-Creditor-Supplier, so if any additional parties such as PayPal (or non-financial intermediaries such as travel agents) are involved then it's hardly surprising that the card companies will use this to decline claims.

When the legislation was written in 1974, PayPal (and other payment processors) didn't exist and so weren't envisaged by the Act, but PayPal does offer its own protection mechanisms for buyers and sellers - not without flaws of course but an alternative to s75 if a PayPal-routed transaction goes wrong.

takman

Biggles wrote: »

I don't use PayPal either but I often still find it being used to process my payment to some online retailer. That would appear to be the problem.

PayPal also offer online payments direct to the retailer. So if you pay using this method where you don't need to log in your still covered by section 75.

The_Big_Bamboo

Richey_ wrote: »

Yawn - old news, repeated a thousand times before...

Not the big headline news you are making it out to be.

Simple only use direct transactions not a third party

Thanks for your input;…Yawn,…predictable response from a forum know-all!

I suspect many people are unaware of this potentially costly anomaly in the ‘Consumer Credit Act’ and it certainly will do no harm to highlight it for newcomers and occasional visitors to the forum (as am I).

Not everyone has the time, or inclination, to spend all their waking hours on forums reading pearls of wisdom such as yours Richey.

Why the need for the ‘big headline news’ comment?...it was a morning TV show and I’ve posted my views/questions on an MSE sub-forum.

Do you have anything of substance to add by the way?

The_Big_Bamboo

eskbanker wrote: »

I think if anything the card companies will seek to widen the 'loophole' rather than plug it!

Worth bearing in mind that the entire Section 75 protection mechanism within the Consumer Credit Act stems from 1974, when credit card use bore no resemblance to today's market as there were hardly any in circulation - the legislation wasn't intended to protect credit card customers as such (other credit agreements were the target population) and so its use in this way is a substantial and growing cost for card companies, who will see its applicability to card transactions in the first place as the loophole.

However, what is clear is that card companies will seek to limit their liabilities by sticking to the letter of the law, which demands the existence of a direct chain between Debtor-Creditor-Supplier, so if any additional parties such as PayPal (or non-financial intermediaries such as travel agents) are involved then it's hardly surprising that the card companies will use this to decline claims.

When the legislation was written in 1974, PayPal (and other payment processors) didn't exist and so weren't envisaged by the Act, but PayPal does offer its own protection mechanisms for buyers and sellers - not without flaws of course but an alternative to s75 if a PayPal-routed transaction goes wrong.

Thanks so much for that;…very informative. :T

However, I’m still unclear as to why there are apparently two routes (one protected, one un-protected) which a transaction can take as it passes through the hands of the ‘3rd Party Processor’;…neither of which is obvious when the buyer makes a purchase.

In the BBC show the ‘3rd Party Processor’ was a perfectly legitimate company called Skrill;…the buyer had no knowledge whatsoever of this company until he saw the name ‘Skrill’ on his credit card statement;…of course, at that point, so far as his protection rights were concerned, the horse had already bolted!

eskbanker

The_Big_Bamboo wrote: »

I’m still unclear as to why there are apparently two routes (one protected, one un-protected) which a transaction can take as it passes through the hands of the ‘3rd Party Processor’;…neither of which is obvious when the buyer makes a purchase.

I don't believe it's as clear-cut as one route being protected and the other definitely not as the whole thing seems a massive grey area with conflicting advice given by various parties (and none at all from the FCA, worryingly), as per the MSE article and associated discussion thread from earlier in the year:

https://www.moneysavingexpert.com/news/cards/2017/04/revealed-section-75-credit-card-protection-may-fail-due-to-payment-processing-loophole---shoppers-beware

https://forums.moneysavingexpert.com/discussion/5639706

takman

The_Big_Bamboo wrote: »

Thanks so much for that;…very informative. :T

However, I’m still unclear as to why there are apparently two routes (one protected, one un-protected) which a transaction can take as it passes through the hands of the ‘3rd Party Processor’;…neither of which is obvious when the buyer makes a purchase.

The reason there are two "routes" as you call it is because when you use services such as PayPal you top up the account with money and then use the money to pay for the purchase. So you could top up the account with one transaction of £1000 and then buy two separate items for £450 each and still have £100 in the account. So there is clearly not a direct connection with the credit card transaction and any purchase made so they can't be held liable.

It would be like me topping up my Monzo Prepaid card from another bank and making purchases then attempting to make a chargeback from the bank for one of the purchases I make.

The_Big_Bamboo wrote: »

In the BBC show the ‘3rd Party Processor’ was a perfectly legitimate company called Skrill;…the buyer had no knowledge whatsoever of this company until he saw the name ‘Skrill’ on his credit card statement;…of course, at that point, so far as his protection rights were concerned, the horse had already bolted!

Many people happily click through when making purchases without reading or understanding what is happening. The amount of people subscribing to services and claiming to know nothing about it on this forum is evidence of that.

Personally i don't think it's difficult to know when section 75 will apply if you make sure you understand the rules and when it will and won't apply. If someone wants to take advantage of section 75 protection then they need to take some responsibility and make sure they understand how to use it correctly. If they only take the time to partially understand it then how can they complain when it all goes wrong. Who do they expect will explain it to them if they don't make the effort to look for the information themselves.