Consumer purchase protection rights upheld.

Posted in 'Personal Finance' by Richard Catlin

11 May 2009

The protection that comes with using a credit card to pay for goods and services has been in the spotlight for some time now, following the collapse of a number of companies and the subsequent help that customers receive in trying to get their money back.

Now, it seems consumers have won an important battle in ensuring that purchases made overseas are offered the same protection.

Section 75 of the Consumer Credit Act 1974 states that credit card issuers and retailers are ‘individually and jointly liable’ with suppliers of goods and services, where the consumer has a valid claim for misrepresentation or breach of contract.

Since 2006, when an appeal by some of the UK’s major credit card companies was thrown out by the House of Lords and the Court of Appeal, transactions carried out overseas have also been covered by Section 75. However, last month saw the Office of Fair Trading (OFT) rule that Citi, the US credit card giant, breached the Consumer Credit Act by including ‘misleading’ terms and conditions on a number of the cards it issues.

Whilst it was found to have eventually recompensed customers who made a claim under Section 75, its terms and conditions stated that the use of its cards abroad would not be covered. The OFT has ruled that this breached the law by deterring customers from claiming in the first place, and has ordered the company to write and inform all those who may have been misled.

The recession has led to an increasing number of firms going bust at very short notice, leaving thousands of consumers in limbo – having paid for, but not received the goods or services they had paid for. High profile collapses in 2008 include wedding gift providers Wrapit and holiday firm XL, with predictions of many more to follow this year. Just last week Freedom Direct Holidays failed, affecting around 10,000 bookings.

In both the XL and Wrapit cases, consumers who had paid using cash or a debit card were left to battle for a refund amongst the rest of the many creditors making claims to the appointed administrators. Unfortunately, given the pecking order of creditors, most people were simply left out of pocket. However, customers who used a credit card to make their purchase were able to make a claim under Section 75 – as long as the goods or services were between £100 and £30,000 - and get their money back from their card issuer.

In the case of holiday bookings, things can be slightly more complicated if you book a package holiday with a company that holds (as all reputable companies should) an ATOL – Air Travel Organisers License. In the case of XL, where ATOL and Section 75 protection both existed, this has resulted in delays in claims being processed.

The Government has since sent up an online guide on its DirectGov site, covering what to do should your holiday plans go up in smoke. Essentially, where your booking is over £100 (for any single element such as a flight), your first port of call should be your card issuer, as ATOL – which is provided by the Air Travellers Trust (ATT) – only comes into effect where no other party is liable.

Whilst credit cards are getting a hard time from many areas of the press at the moment, the protection they offer when making a significant purchase could prove invaluable.

You can see which credit cards are matched to your credit rating for free on checkmyfile by clicking here. Not only could you find a great deal, but you could ensure that should the worst happen and a company that you order goods from goes under, you won’t be left counting the cost.