Section 75 and third parties: when you aren't protected

By Benjamin Salisbury


You've likely heard of Section 75, and perhaps it's even come to your aid in the past. But does it cover you when you're purchasing an item or service through a third party? The short answer: that depends.

Under Section 75 of the Consumer Credit Act, you can get a refund on credit purchases between £100 and £30,000 if something goes wrong with the item or service, if the product is misrepresented or if it's faulty or not delivered.

However, a vital part of Section 75 protection is the debtor-creditor-supplier relationship. Protection can become invalid if the relationship between the debtor (you), creditor (your credit card company) and supplier (the retailer) is proven to be broken by the involvement of a third party.

Third parties create grey area
Third-party payment processors include PayPal, Amazon and Worldpay, among others. If you make a payment to a retailer using one of these payment processors, the debtor-creditor-supplier relationship can be considered to be broken.

"There are a few circumstances where Section 75 does not apply, including where goods or services are bought through intermediaries," says Ruth Pott-Negrine, senior press officer at the UK Cards Association.

However, the invalidity of Section 75 due to third party involvement is a complex and technical distinction that the regulator, credit card issuers and consumer groups have not been able to fully clarify.

"I cannot give more detail as to when Section 75 protection applies or not, because this is down to how the legislation is drafted," a spokesperson from the Financial Conduct Authority said in an emailed response to questions.

The reason for the murkiness: Section 75, now more than 40 years old, was created before the arrival of new payment technologies, so the legislation doesn't cover when external payment agents are part of the transaction.

Following the retailer-customer chain
"When we look at the payment mechanism used in a transaction, we need to carefully consider what each party in the chain was responsible for and the activity they were actually carrying out," Megan Webster, policy and communications manager at the Financial Ombudsman Service (FOS), said in an emailed response to questions. "That helps us to determine whether a third-party processer breaks the chain."

Here's how third-party payments work, according to the Financial Ombudsman:

  • The firm that provides the credit card is known as the card provider. It belongs to a credit card network, such as Mastercard or Visa.
  • The retailer is known as a merchant. It signs up with a merchant acquirer, which belongs to the same credit card network as the bank.
  • The retailer gets its money from the merchant acquirer. The merchant acquirer gets its money from the card provider.

So, the chain is:

merchant (the retailer) > merchant acquirer > credit card network > card provider > customer.

Not every third-party payment processor is responsible for the same role, so the Ombudsman must check on a case-by-case basis what role the processor was performing before determining if you, the consumer, can file a Section 75 case, Webster said.

Some other third-party situations that invalidate Section 75:

  • When you use an agent.
    This issue is becoming more widespread. A buyer purchases a flight or a holiday through a travel agent or other agent, or a holiday accommodation website lists properties on behalf of individual owners. The creditor-debtor-supplier link is deemed to be broken by the involvement of a third party, and Section 75 no longer applies.
  • When you are a secondary cardholder.
    If you are not the primary named cardholder on the credit card account, you could be caught out. For instance, say both cardholders buy the same rail ticket for a service that is subsequently cancelled and are unable to secure a refund from the rail company. The primary cardholder is entitled to a refund through Section 75, but the secondary cardholder is not.
  • When an item is registered to a name other than that of the cardholder.
    Another instance that can catch credit card holders out is when goods are purchased on behalf of another person. For instance, a husband might use his credit card to pay for a new car for his wife, which is then registered in the wife's name. If something goes wrong with the vehicle, credit card companies can wiggle out of a Section 75 claim by accurately arguing that the purchase was made under a name other than that of the car owner.

What can consumers do?
If your Section 75 claim is rejected, you can appeal to the Financial Ombudsman, which has the power to reverse the decision.

"If someone has been turned down by their finance provider and think they may have been treated unfairly, they can ask us to look into their complaint," said the FOS spokesperson.

And, according to the UK Cards Association, just because Section 75 may not apply to a purchase, that doesn't mean you're left with no protections.

"Agencies like these often have their own payment protection systems in place," guidance from the association states.

The bottom line: The biggest problem for consumers using third-party payment processors is that, in most instances, it is never made explicitly clear that the use of the third party will invalidate Section 75 protections.

Because the waters surrounding Section 75 and third parties are so murky, the best way to avoid a rejected claim is, when paying with a card, to pay a supplier directly whenever possible.

It's up to you to protect yourself by doing your own research to know the possible consequences.

See related: How chargebacks can get your money back, Your wallet was stolen. Now what?

Published: 1 June 2017