The credit card refund that’s all grief and no fun | Credit cards

Shoppers and holidaymakers who have bought goods or services from companies that then went bust are increasingly finding their claims for refunds wrongly rejected by their credit card issuers.

A part of credit card law, introduced in the 1970s and known as section 75, means that credit card companies must take responsibility for refunding customers their money if the goods they bought never turn up or the supplier goes bust. The total cost of the goods you are paying for must be more than £100 and less than £30,000 for the law to apply.

With the recession causing more small businesses to fail – 120 are going to the wall daily, according to the Federation of Small Businesses – these claims are rising. Although there are no industry figures, the banks’ trade body, the Association of Payment Clearing Services, admits levels are very high. But credit card companies appear to be coming up with a multitude of ways to wriggle out of paying back money to card holders.

Consumer watchdog Which? has received increasing numbers of calls to its legal advice line on the subject.

“In the past few months we’ve seen far more examples of credit card issuers trying to reject valid claims under section 75,” says a spokesman. “It’s disappointing that they are rejecting them for spurious reasons, especially in the current climate. One of the reasons consumers pay by credit card is because of the protection they provide, but they are not all aware of their rights.”

The Financial Ombudsman Service says complaints arising from section 75 claims nearly doubled last year compared with the previous one.

When XL Airways went bust last September, days before one Nottinghamshire couple’s summer holiday to the Greek island of Santorini, they were not too concerned about getting their money back.

After all, Eunice Kimber, 49, had charged the £597 cost of the flights for her and partner Dennis Frith, 53, to her Nationwide credit card and she would, therefore, be covered under section 75.

Kimber put in a claim to the building society seven days later, and the couple booked a holiday with Thomas Cook to Zante, another Greek island, for £800. However, she did not expect to be given the runaround for six months, in which time she was continually fobbed off with a series of excuses as to why her claim had not been processed.

Firstly, she was told it was too late because she had booked the flights in August 2007. Then she was informed that since she had paid her credit card bill in full, she could not claim. And twice she was told her claim form had not been received. This is far from an isolated incident. In fact, Cash has heard of several recent cases of claimants being given incorrect information and of attempts to fob off claims.

“I was amazed at the different excuses for the delay in paying my claim,” says Kimber, who works as a local government finance assistant. “One time I was told I had to speak to the disputes team, but then they refused to let me speak to them. It was ridiculous how it was taking so long to be repaid.”

Finally, her card account was credited last week with the full amount and £50 compensation for the delay.

A spokesman for Nationwide explains: “There was a breakdown in communication, coupled with the fact that we had a large number of claims as a result of the failure of XL.

“She shouldn’t have been told she couldn’t speak to the disputes team. Our claims process didn’t work as effectively as we’d expect it to.”

Those who prefer to pay by debit card may also be able to claim back the money they have spent. The problem is, not many card holders know this – and neither, it seems, do the banks and building societies issuing the cards.

Anyone who has bought using a Visa debit card is covered by its little-known “Chargeback” scheme, which offers similar protection to section 75.

To make a claim using Chargeback, customers must contact their card issuer, which then contacts the company’s payment-processing bank to reclaim the money.

This means that even if a company goes into liquidation, it is possible to reclaim money, as the claim is made against a bank, not the company. The claim can be made on any purchase where the goods or services are not provided, and is not dependent on the supplier going bust.

Cash brought Visa Chargeback to our readers’ attention last year. Subsequently hundreds of passengers of collapsed airlines Zoom and XL who paid by a Visa debit card have successfully used the scheme to reclaim the cost of flights. However, many others have emailed us to say that their bank or building society has never heard of Chargeback.

Cash readers Graham and Julia Davies, from Bolton, recently received a Visa debit card for their joint HSBC account. They decided to use this to pay for the cost of a rail holiday in France because paying by credit card would have incurred a 1.5% transaction fee.

“I decided to check that I would be covered by Chargeback if anything happened to the holiday company we were booking through,” says Graham. “I rang the ‘from overseas’ number on the back of my card and, after some delay while the HSBC rep made enquiries, he came back and claimed that HSBC had no liability. So I then called the head office freephone number and the rep, without reference to anyone else, claimed that Visa Chargeback did not exist for debit cards.”

A spokesman for HSBC says its Visa cards are covered by the Chargeback scheme and that its staff may have made a mistake. Although mistakes are also made by other card issuers, HSBC and First Direct customers should be particularly alert in the next year as the banks – which are part of the same group – are at the beginning of a 16-month process of switching all their current account customers from Maestro to Visa debit cards.

Royal Bank of Scotland is the only other banking group whose customers do not have Visa debit cards. It has plans to begin issuing these to its account holders, but not until the second half of this year.

Booking a holiday or paying for goods using an RBS or NatWest debit card currently gives you no protection should something go wrong.

‘Sorry Sir – the dog ate your claim …’

The excuses your credit card company might give to avoid paying up … and what you need to know in response.

It’s too late: The commonest excuse for refusing a credit card claim. But the law says you have up to six years to bring a claim. In Scotland it’s five years. However, if you are making a claim using Visa Chargeback on your debit card, then you should contact the bank that has provided you with your Visa debit card within 120 days of discovering that goods and services are faulty or do not materialise.

The transaction did not take place in the UK: This is not a valid excuse: you are covered for credit card payments anywhere in the world.

You paid less than £100 so your claim falls outside the law: Not necessarily. Provided you paid for something with a value of more than £100, you are covered. So if you paid a deposit of £50 with your credit card, and the balance of £50.01 or more in cash, you still have the protection of the law. And you can claim the full £100 from the card company, not just the amount paid with the card.

You cannot claim for multiple items bought at the same time where each is worth less than £100: This is less clear-cut . But if the items are regarded as a set – such as a three-piece suite, or are made in a single transaction, such as four airline tickets – then you are covered. If they are not, then you cannot claim for anything costing less than £100.

You cannot claim for other losses you have incurred as a result of the failure of the merchant: Not true. You have the same rights as you would have had against the retailer, says a Which? spokesman. “You must be put back in the same financial position you would have been in if the breach had not occurred,” the spokesman adds. So, if an airline goes bust and you have to buy replacement flights that cost more than the original ones, you can also claim for the additional cost of those flights.

We can’t claim the money back because the company you bought from has no cash: The bank or building society can reclaim the amount they have paid out from the retailer through its bank, but when companies collapse there may be no funds to draw on. But even if they have not succeeded in reclaiming the money, you are still entitled to be repaid.