Section 75 refunds Free protection for ALL spending

There's a secret phrase that turns any credit card into a financial self-defence superhero. "Section 75" laws means your plastic must protect anything you buy over £100 for free, so if there's a problem or the company goes bust you can still get your money back.

This full detailed Q&A guide shows you how to maximise protection, when you're not covered and includes free template letters for claiming.

While every effort's been made to ensure this article's accuracy, it doesn't constitute legal advice tailored to your individual circumstances. If you act on it, you acknowledge that you do so at your own risk. We can't assume responsibility and don't accept liability for any damage or loss which may arise as a result of your reliance upon it.

What is Section 75?

It's a vital law made in the 1970s which means your credit card company must take responsibility if things go wrong with a purchase. In a nutshell...

Pay for something costing between £100 and £30,000 on a credit card and the card issuer's equally liable if something goes wrong.

This isn't the credit card company being nice. It's a legal protection put in place so that you're never in the position of paying debt for something you didn't receive or wasn't as it should've been. Whether it's a flight, kitchen, computer or anything else, pay on the card and the card company's responsible too.

The law behind this

This all comes from Section 75 of the Consumer Credit Act 1974, hence why this is sexily named Section 75. It rather impenetrably says…

When should I use it?

This piece of legalese is fantastic protection, particularly during these credit crunch times. It means if you order something and if the retailer goes kaput, you can still claim your money back from the card company (even if you've since closed your credit card account).

Plus, even if the problem is just non-delivery or faulty goods, you have exactly the same rights from the credit card company as from the retailer or flight company or supplier.

Some typical examples…

• You order a vase from an overseas store that never arrives.
• You buy flight tickets direct from an airline that goes bust.
• You buy a radio from a shop, you take it home and it's faulty.

In all of these, your card lender is jointly liable for a refund.

Therefore if you're buying something or ordering tickets or flights worth over £100, pay for some or all of it on the card to ensure you're protected. Though do keep your receipts as well as the credit card statement to make it easier.

It's worth remembering that sometimes you might not be able to protect yourself, for example if you pay a monthly fee of under £100 to a company that goes into administration.

Yet the maximum loss should be £100 and a bit of inconvenience, which in the wider state of the economy at the moment is not such a bad loss. But always check the options below just in case.

Here's a success story to give you some inspiration...

Does it apply to other credit?

While the bulk of claims are made to credit card providers, the law also applies to other types of credit agreement.

And from June 2010, if you specifically arranged credit to buy a good or service, such as a car, the introduction of Section 75a increased the upper limit for claims to £62,260.

Personal bank loans specifically for large items do not get Section 75 protection, even though the loan's a regulated agreement. This is because to be covered, the finance must be properly linked to an item (known as a debtor-creditor-supplier agreement) so the finance company can see a clear relationship between the money and the goods.

Paying by credit card is paying directly for goods, meaning the relationship's clear, whereas bank loans, even if ostensibly for a car, could actually be spent on anything.

Which card should I use?

Just to clear this up, this protection only applies to credit and store cards, NOT debit cards, cash spending, using cheques or charge cards. Therefore you have to use a credit card to be protected.

Yet credit card companies do, of course, make their money by charging you interest. And frankly the interest cost is so large it often overrides the protection, so follow…

Always set up a direct debit to pay the card off in full each month, so you'll never pay interest.

If you don't have a credit card or have debts on a card, and need another specially for these purchases so you can pay that one off in full each month, then it's time to apply for a new card. In which case, the two best choices are:

• A cashback credit card. These pay you each and every time you spend on them. With a direct debit set up so there's no interest, this can add £100s a year to your income without any hassle, so you get a double whammy. Full info and best buys in the Cashback Credit Cards guide.

• A 0% for spending card. Borrowing in the current climate isn't a good idea. But if you are going to spend on a card you can't repay in full, at least ensure it's as cheap as possible. A number of cards offer 0% interest for a year on all your spending. Full info and best buys in the 0% Interest Cards guide.

If your credit score's not good enough to get one of these, read Section 75 without a credit card.

Chargeback

Where Section 75 doesn't apply, there's another rule that you can fall back on if you use one of the following cards...

Although with chargeback, it's just about the Visa/Mastercard/Amex process and that's nowhere near as weighty as Section 75. See the full Chargeback guide.

Are there any exceptions?

As always with these things, a few exceptions escape the safety net. First is anything to do with the purchase of land - this is controlled by regulation from the Financial Conduct Authority. Three further areas, caused by the indirect nature of the payment, are as follows:

• When the primary cardholder does not pay. Additional cardholders, etc.

  If you have an additional card for a partner, child or friend and this card is used to make a payment for a item you subsequently need to claim for, you'll need to show the item provides some benefit to the primary cardholder to be covered.

  So if it was a family car or gift for the main cardholder, this is likely to be OK. But a solo flight for the 'plus one' isn't.

  This isn't technically written into the legislation, but is based on a ruling (62/02) by the Financial Ombudsman in 2007.

• When you buy through third parties. Travel agents, PayPal, group buying sites, etc.

  You're unlikely to be covered when payments are made to a company that isn't the one providing you with the product or service. In these cases, the credit card company usually says it didn't have a direct relationship with the supplier, so isn't equally liable.

  If you stand your ground, it's possible to argue that the indirect relationship constitutes an arrangement to pay. The Court of Appeal decided this was acceptable in 2006, but it's unlikely to be an easy task.

  The first main area is paying via an online processor such as PayPal, WorldPay or Google Checkout. Though these can have their own refund systems, they aren't as strong as the legal protection of Section 75.

  
  

  There have also been recent cases where people buying goods on Amazon from other suppliers have been turned down for Section 75 claims by credit card companies. Some opinion says these SHOULD be covered, but it may be a fight to make it happen.

  The other scenario is buying through a travel agent, where it is simply directing you to get a flight from an airline or a package holiday from a tour operator. You should have ATOL protection for package holidays anyway (see Cheap Package Holidays) and in 2012 this protection was extended to include flights and accommodation or car hire booked from the same company within a day of each other, even if they're not part of a formal package.

  Flights alone don't usually have protection elsewhere but if you're not covered, as many travel companies act as an agent of the tour operator, a claim against your card provider could be successful, so give it a try.

  A relatively new area for third party purchases is group buying websites, like Groupon and LivingSocial. Here you buy a voucher for a cheap deal and the good or service is redeemed by another retailer. This indirect relationship could make it hard to claim using Section 75, yet you should be able to use the chargeback route instead.

  A standard voucher purchased from another store (eg, a Topshop voucher bought from WHSmith) would also count as an indirect purchase, so is unlikely to be covered.

• When you don't pay directly on the card. Credit card cheques, money transfers, cash withdrawals etc.

  Pay with credit card cheques and, according to the Financial Ombudsman, Section 75 doesn't apply as it's an indirect form of payment.

  It's also worth pointing out that if you withdraw cash on the card, a bad thing to do anyway as you'll pay interest even if you clear the card in full, then the protection doesn't apply for things you buy with the cash. This can also apply if you've paid by a money transfer rather than a direct payment.

  One other point to make is the purchase of gift vouchers on a credit card may be counted as a cash payment, and while this would get Section 75 protection, you may be charged interest from the purchase date. Check your card's terms and pay off the card sooner if this applies to you.

What if I only pay the deposit on the card?

The law's very specific, you get the protection for the whole thing even if you only pay for a part of it on the card, provided what you pay for costs more than £100 and less than £30,000.

Here's a quick example of how it works…

Savvy Salma spots the hi-tech TV she's been planning to buy at half-price for £500, including delivery, in a high street sale. Yet she's only got £10 left on her card limit (don't worry, it's a cashback card, she's going to pay it off in full).

Salma pays £10 of the cost on her credit card and the rest on her debit card. Sadly the next day the store goes bust, before her telly is delivered. Yet she can claim the WHOLE £500 back from the credit card company, because she paid in part on the card.

Therefore if you want protection…

As long as it costs more than £100, pay for even a fraction on a credit card and you're protected.

Should the bill or the item cost over £100?

This is where it gets quite tricky. The law is plain; the £100 is for the cash value of a 'single item' (so excluding any fees, and charges such as delivery). Yet single items aren't always that straightforward.

Here are a couple of examples to help:

• Fly to Traveltown with Holidayair on flights costing £99 outbound and £9.99 back, and while it's over £100 in total, as no single ticket was over £100, you're not protected. Yet if Holidayair had only sold return journeys and you bought a specific £109 return ticket, then you would be covered.
• Alternatively, if a suit jacket and trousers are individually priced at £60 each, you're not covered, but if you buy the suit as a whole for one price of £120, you are covered.

This can get more complicated though. If the company links the transaction together, for example by giving a special offer if two flights are purchased together, then you should be covered.

This hasn't been tested yet

This information is based on conversations with eminent legal brains and Trading Standards. Yet this part of the law hasn't been tested in court so far.

Therefore, if in doubt, it's always worth contacting your credit card company to make a claim. If you consider it to be a ‘single item', make sure that's how you phrase it to the card company. Please report your experiences in the single item claims thread to help others in a similar boat.

Are overseas and web purchases protected?

Yes. This used to be a hot potato, but in 2006 this got to the Court of Appeal and it confirmed this applies to everything you buy. Whether it’s in the UK, abroad or on a foreign website, Section 75 applies.

This is a real boon, as often if you buy something abroad it’s much more difficult to get in touch with the retailer. So don’t bother, simply make a claim directly against the credit card company.

Are group purchases protected?

There appears to be some conflicting information on this, but in general, if you've paid for a group booking, such as a holiday payment for friends or non-immediate family, you should be protected for the full payment. Yet for those who want to play it safe, the best bet is to ask others to pay their own way where possible.

Let's say you pay for a whole group of mates to go on holiday with your credit card, and they pay you back their portion. Section 75 protection becomes confused if the holiday firm goes into administration, as there is some argument over who is part of the credit card contract.

Although Trading Standards told us the payee "is entitled to a compensation of the full amount from the credit card company", the Financial Ombudsman says there's a chance you'll not be covered for the full amount, possibly only being entitled to your own proportion of the payment. So whilst payments for partners and children are easier, others are not so clear-cut.

If this happens to you and your bank won't reimburse the full cost, take your complaint to the Ombudsman anyway as it could agree to your complaint. Details on how the FOS can help are in the Financial Fightback guide.

How do I make a claim?

Firstly, remember this is a legal right. Martin's claimed under Section 75 a couple of times, once it was easy, the other time they kicked up a fuss. While card companies are getting better, many will still talk about their own procedures.

To make a claim, you need to contact your credit card company (you can still claim on an account that's closed) not Visa, Mastercard, or Amex. So if you've got a HSBC Mastercard, you claim from HSBC, not Mastercard.

Yet the experience can be slightly different depending on the scenario:

• If the retailer/supplier has gone bust

  Here it's clear-cut, you can't go to anyone else so the only option is to claim from the credit card company. Call it up and politely explain what you're doing. Make sure you invoke the rules though. Actually say: "I am making a claim under Section 75 of the Consumer Credit Act". It should then send you a claim form in the post.

  Sometimes the card company will tell you it will try to reclaim the cash from the company in administration. You can simply answer: "Great news, I wish you the best of luck. However you are completely liable for my goods yourself, and I would like the full amount I'm entitled to please, regardless of that claim."

  You can make a claim as soon as you know about the administration, even if the product has not been delivered or service has not taken place, under something called 'anticipatory breach' (you know you're going to be out of pocket). If the card provider questions this, tell it you're going to take your complaint to the Financial Ombudsman.

• Complaints about a product and the retailer/supplier isn't bust

  Here you may be met by "that's not our business, go to the retailer". Actually you don't have to, it is their business and you've a legal right to redress. The law makes clear that the credit card company is jointly responsible, so there's no 'first point of call'.

  However, frankly, unless you need to (eg, the supplier/retailer is overseas) it's much easier to deal with the retailer.

  If you are claiming from the card company, be firm but polite, and request a claim form. Again, on the claim form, state it is a claim under "Section 75 of the Consumer Credit Act".

You could find the call centre person hasn't a clue what you're talking about, so be polite but firm in the fact that you have a legal right to make a claim. If your card provider tells you to put your request in writing, here's a template letter to help:

If your card provider still won't help, then contact the Financial Ombudsman to make a complaint. This is completely free and well worth doing, there's a simple claim form on its website and details on how it can help in the Financial Fightback guide.

Of course, if the credit card company went bust, then while you could become a creditor, there is no protection from this. Yet for both the retailer and creditor at the same time to go bust, you'd have been very unlucky.

Can I claim costs?

The law allows you to claim for ‘consequential losses' arising from the problem. In other words, if what went wrong forced you to shell out, the credit card company is liable just like the retailer would be. Obviously it's more difficult to do, but it's still legal.

Here's a success story to give you some inspiration...

How to get protection without a card

There is one loophole round this. Prepay cards are special plastic you load up before you spend and anyone can get one as no credit check is needed. Normally these don't get Section 75 protection, as there's no credit, but one specific card does includes similar protection.

The CashPlus* prepaid card's provider confirms it provides protection similar to Section 75, although this is NOT legal protection.

• The Activeplus account. Here you pay £4.95 a month for a minimum of a year (so £60 a year) and you get a facility that helps towards rebuilding your credit rating. There are then no fees for spending on it, but there's a further monthly fee if you do not use or top up the card for four months.

• The Flexiplus account. Here there's no monthly fee, provided you use or top up the card every four months. There's a 99p transaction fee each time you spend. If you're getting the card for a few big transactions, this is cheapest.

Is it worth it?

It's a tough one to answer. If the protection ended up paying out for you, the cost of the card is cheap, otherwise it may feel a waste of money. If you're making a big purchase with a company that worries you, this may give added piece of mind.

It is worth noting you are reliant on the fact that the card company itself won't go bust to get your money (and for the safety of the cash you load on it). Prepay cards are growing in popularity, so it is likely to have some financial strength, and it'd be quite a coincidence for the card company and retailer to go kaput at the same time - but nothing is 100%.