Section 75 under threat

Posted by Erika Bone in Personal Finance on 4 July 2016 - Erika is a Credit Analyst at checkmyfile

June saw the 50th anniversary of the introduction of credit cards to the UK. During the 50 year period, the number of cards has continued to grow exponentially, with current statistics recording over 60m credit cards in circulation, relating to 51m accounts.

Although a credit card’s primary function is undoubtedly to allow consumers to buy goods and services which they may not have been able to afford using their own funds, many consumers decide to make a purchase with their credit card due to the additional protection it will give them enshrined under Section 75 of the Credit Consumer Act of 1974.

This 42 year old consumer safeguard could be under threat, however, as the Financial Conduct Authority embark on a review of the Consumer Act this month. In 2014, 82 sections of the Act were brought up to date but 167 sections including Section 75 have not been altered since the original drafting in 1974. The FCA have stated that their aim for the appraisal is to “simplify the regime” and “protect consumers whilst not placing disproportionate burden on firms”.

Section 75 presently covers a consumer if a retailer goes bust or if a product purchased is faulty, damaged or is not delivered for individual items or services from £100 to £30,000. Estimates show that over the last 3 years, 2.1m people have invoked Section 75 to make a claim. This equates to just 2% of credit card customers each year and it is believed that at least two fifths of all claims are rejected by the providers. Many consumers are unaware of the security this law can offer but Allister Douglas of Totallymoney affirms that, “the law provides an added incentive for people to pay for goods and services by credit cards, which is to the benefit of providers”.

Consumer groups are concerned that the review could weaken the rights of the shopper but many agree that the Act needs to be modernised. Hannah Maundrell from Money.co.uk is concerned due to the uncertainty as, “we don’t yet know how far the regulator will go in rewriting the rulebook. There is potential to scrap valuable protection, such as Section 75, if it is deemed that it is too big a drain on the industry.”

As an adjunct, any decision and resulting change will not be a quick process as the FCA’s deadline on updating the Treasury is not until April 2019 so consumers need not be disheartened as they will certainly have a number of years’ protection that Section 75 provides.

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