Better overseas protection, but likely to be at a price

Posted in 'Personal Finance' by Richard Catlin

18 September 2009

New EU legislation, due to be introduced at the beginning of November, will seek to give consumers who have been overcharged for goods or services whilst on holiday more chance of a refund once they return home.

Under the new guidelines, transactions where the final amount is not specified at the point of payment – such as hotels or car hire - will be challengeable, should a consumer believe that they have been overcharged.

The key point – and the thing that is likely to cause most concern to UK credit card issuers – is that any refund will cover the entire purchase, rather than just the element that is in dispute. So a successful challenge to the fuel surcharge or insurance excess on a hire car would see the entire cost repaid.

The exact details of the Directive are still very vague – at the moment there is no mechanism in place for processing refunds.

When it is introduced, consumers will be able to challenge any transaction that “exceeds the amount the payer could reasonably have expected in all the circumstances” – and will have 8 weeks in which to request the refund.

The trouble is that banks will probably interpret the fluffy rules in their own way, and given the potential costs, many consumers are likely to see claims dismissed out of hand. Either way, credit card providers have 10 days from when a claim is filed in which to approve or reject the refund. If the request is rejected, they will also be obliged to inform the consumer of how and where they can lodge an appeal.

The UK Payments Administration, which is likely to be involved somewhere in the process, is undergoing something of a facelift itself at the moment as it rebrands from its former guise as APACS. This could well add to the confusion when the new Directive is introduced on November 1st.

The wording of the Directive – which is covered in a 140 page document - suggests that initially at least, there will be substantial confusion over exactly what can and can’t be claimed, and it’s fair to say that the card companies are unlikely to welcome any new costs with open arms.

Only last year, it took a High Court ruling to reinforce the fact that lenders are jointly liable for goods or services purchased overseas under Section 75 of the Consumer Credit Act 1974, after a number of leading credit card companies launched a class action to challenge their level of responsibility.

Regardless of the initial uncertainty, the new directive does offer hope that UK consumers will have an extra layer of protection when making purchases abroad.

The cynical view of course is that any extra costs incurred by card providers as a result of the new legislation will simply be passed straight back to consumers in the form of higher charges, especially for overseas transactions. Many credit card providers have already raised charges for using a card abroad, and coupled with struggling exchange rates, further increases would be hard hitting.

For those travelling abroad, the credit card that currently stands out as the best buy, because of its much cheaper charges for cash withdrawals and purchases overseas, is the Post Office Card. Frequently mentioned in the press as a must-have card for business travel, most consumers will save themselves a small packet by obtaining this card and taking it with them on holiday for that benefit alone.