Lloyds Bank ordered to settle two-year-old Section 75 claim involving PayPal

Former_MSE_James_F

Lloyds Bank has been ordered by the Financial Ombudsman Service (FOS) to settle a so-called 'Section 75' claim that is almost two-years old after the high-street lender tried to avoid making a payout because the items were bought via PayPal. We have the full details below and what to do if you face similar problems.

Read the full story here:
'Lloyds Bank ordered to settle two-year-old Section 75 claim involving PayPal - here's how you can fight for a refund too'

Click reply below to discuss. If you haven’t already, join the forum to reply.

arthurfowler

I haven't read it yet but that is great news! 

Sandtree

arthurfowler said:

I haven't read it yet but that is great news! 

Its not, its in line with what has always been said...

Pay with PayPal as a payment processor but without using your PP account then you get S75 protection because payment goes direct to the merchant in the same way as Worldpay, Sage or any other payment processor

Pay with PayPal by first logging into your PP account then you dont get S75 protection because the monies goes into your PP account first and is then transferred to the merchant's PP account. The extra step breaks S75 DCS chain.


The story is also wrong in it saying it helps solidify the position, there is no concept of precedence in the FOS decisions and so the fact that one case has made this decision has no baring on any other  decisions... its not even clear that its an ombudsman decision as these would normally reference the decision of the adjudicator before them and who disagreed but there is no such comment on the text copied and no Ombudsman Decision on the FOS website yet

Jenni_D

The key here is "guest login to PayPal" makes them merely a payment processor (like many others, e.g. SagePay, Square) and so doesn't break the debtor-creditor-supplier (DCS) chain.

This ruling does not go in the consumer's favour if you pay by PayPal whilst logged in to your PayPal account - even if the funding came from your credit card.

born_again

Time S75 had a total overhaul as it was never designed for credit cards. It was intended to cover the likes of hire purchase where the lender was almost tied to the seller. As you had no choice but to use the retailers chosen credit provider.

Would really help if there was a link to the actual FOS case.

Sandtree

born_again said:

Would really help if there was a link to the actual FOS case.

There will only be a link available if its an ombudsman decision, there is nothing in the wording pasted to say its more than an adjudicators decision (unless I missed it on scan reading)

arthurfowler

Sandtree said:

arthurfowler said:

I haven't read it yet but that is great news! 

Its not, its in line with what has always been said...

Pay with PayPal as a payment processor but without using your PP account then you get S75 protection because payment goes direct to the merchant in the same way as Worldpay, Sage or any other payment processor

Pay with PayPal by first logging into your PP account then you dont get S75 protection because the monies goes into your PP account first and is then transferred to the merchant's PP account. The extra step breaks S75 DCS chain.


The story is also wrong in it saying it helps solidify the position, there is no concept of precedence in the FOS decisions and so the fact that one case has made this decision has no baring on any other  decisions... its not even clear that its an ombudsman decision as these would normally reference the decision of the adjudicator before them and who disagreed but there is no such comment on the text copied and no Ombudsman Decision on the FOS website yet

There has always been confusion as to whether you are covered with a third party processor. I have seen plenty of comments over the years on here debating that. 

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

If there's a third-party payments processor, Section 75 may NOT apply

Section 75 of the Consumer Credit Act 1974 is a vital UK law that means when you buy something costing between £100 and £30,000, and you pay for any of it on a credit card, your card firm's liable for the whole amount just as much as the retailer if things go wrong. If the worst happens, you can go to the card firm to get your money back. See our full Section 75 guide.

That sounds pretty simple, and often is – but crucially the law requires a particular relationship between the card company, customer and retailer for the protection to apply.

Technically there must be a direct link between the debtor (that's you, the customer), the creditor (the credit card company – eg, American Express, Lloyds, Barclaycard) and the supplier (the retailer selling you the goods or service). If that relationship is deemed to be broken by the involvement of an intermediary or third party, Section 75 protection WON'T apply.

The trouble is, deciding whether or not a third party breaks the debtor-creditor-supplier chain is a fiendishly complex and technical matter, and in some cases seems somewhat arbitrary.

'When you pay by credit card you expect to be covered'

We've spoken to a number of MoneySavers caught out by this loophole – in some cases they've been left £1,000s out of pocket. (ITV's Good Morning Britain also has the story of someone affected – and MoneySavingExpert.com founder Martin Lewis spoke about the issue on Wednesday's show.)

In February 2016 'Nick' (not his real name) paid for a family member's £6,000 breast surgery using an American Express (Amex) credit card, to qualify for Section 75 protection. However, the patient was left unhappy with the work and sought corrective surgery from the surgeon who'd performed the original procedure.

She then discovered the surgeon had moved overseas and couldn't perform surgery in the UK, so Nick turned to his credit card company for a refund. Amex rejected Nick's Section 75 claim on the grounds the payment to the surgeon was collected via third-party firm iZettle, prompting Nick to appeal the decision to FOS last week.

Nick told MSE: "When you pay by credit card you expect to be covered. I feel American Express is just trying to get out of this situation. Unfortunately we are not blessed with the thousands of pounds needed to solve this problem."

Confusingly, when approached about the dispute, iZettle told MSE it was "frankly surprised" to hear of it because its card-processing services "do not disrupt such rights". But it was unable to comment on the specifics of Nick's case. Amex also said it was unable to comment due to the ongoing FOS appeal.

We've had other reports too – for example, from a MoneySaver who paid £1,000s for a new kitchen and had her Section 75 claim turned down because a third-party processor had been used. Let us know if you've had similar problems by emailing news@moneysavingexpert.com.

Anything which helps further clarify the position is helpful.

Sandtree

arthurfowler said:
Anything which helps further clarify the position is helpful.

I personally dont think it has added any clarity, and nor is it the first case of its type either eg: Decision Reference DRN-3063018 (financial-ombudsman.org.uk) from 2018

Other than the rare occasion you buy something directly from a bank that owns its own card acquiring service all credit card payments go via some form of payment processor, this was considered in Office of Fair Trading v Lloyds & others [2006] and it confirmed the use of a traditional acquiring services didnt break the chain. 

Life has gotten complex as new FinTech companies have sprung up to create new solutions and until either there is further litigation or parliament decide to rewrite S75 of the CCA there will always be question marks of how old legislation will apply to new ideas... as has been said before, when S75 was drafted credit cards were an exceptional rarity and now there are more than 300m CC transactions a year

arthurfowler

born_again said:

Time S75 had a total overhaul as it was never designed for credit cards. It was intended to cover the likes of hire purchase where the lender was almost tied to the seller. As you had no choice but to use the retailers chosen credit provider.

Would really help if there was a link to the actual FOS case.

Why does it need an overhaul? Whether it was designed in this way or not, it is one of the only legitimate ways a consumer has to take action. Other ways are far more laborious and difficult. It's not like they hand out refunds, they still investigate the issues first. 

Jenni_D

arthurfowler said:
It's not like they hand out refunds, they still investigate the issues first. 

I suspect the reality is that they do a cost/benefit analysis and don't challenge lower value claims where it would end up costing them more to do so than the value of the claim.  

Tim11111000111

It's an interesting decision. I find it odd that there is a supposed distinction depending on whether or not you are logged in to your account in order to make the purchase. I typically log in to my Paypal account when making a purchase because it has my card details already saved and logging in is easier than digging out a card and typing in the number. I'm no lawyer, but I don't see how doing so breaks the "chain" any more than using the guest checkout process. As far as I can tell, PayPal's role is still no more than a payment processor. It appears on my credit card bill as "PayPal * Storename" which is the same format as other payment processors (e.g. iZettle appears as "iZ * Storename"). 

Obviously that's different to using money from my "PayPal balance" - I'm not sure I can top up my "Paypal balance" directly from a credit card, but if I could then that I can see that would break the "chain".