[Dave Birch] One of the reasons why I always — and I mean always — use one of my credit cards both online and offline (and remain mystified about the growth in debit card usage) is because of the Consumer Credit Act (1974). In particular, it’s because of Section 75 of that Act. For those of you unfamiliar with the details of our credit regulations, “s.75” is the part of the Act that says to me as a consumer that (in essence) if shit happens, it’s bank’s problem and not mine. So if I buy a holiday from a travel agent who subsequently goes bust, I get my money back. If I buy a dishwasher from a web site and the dishwasher doesn’t show up, I get my money back. This isn’t a universal right (it’s limited to transactions between 100 and 30,000 Sterling) , but it covers most of the important transactions I ever make. Naturally, banks have been complaining about it, as I would if I was a bank since s.75 has an element of moral hazard about it: as a consumer, there’s no need for me to take any care in checking out the web merchant I’m dealing with because I’m not liable.

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The banks have been in court about this, trying to get the liability restricted on a couple of points. I’m not a lawyer, so please don’t imagine that my relaying of these points is in any way accurate, but they were something to do with overseas transactions and something to do with “four party” transactions (ie, that the acquirer has the contract with the merchant, not the issuer). They lost on both points and were refused leave to appeal on the second point. So they appealed the overseas transactions point to the highest court, the House of Lords. Well, the House of Lords recently found against them and confirmed that credit card users have the right to compensation for defective goods bought overseas. Carl Belgrove, Senior Policy Advocate at the National Consumer Council (NCC), welcomed the ruling:

The House of Lords judgement is great news for consumers. People in the UK are heavy credit card users and with more of us travelling abroad – coupled with buying products online from all over the world – Section 75 provides an extra safeguard and boosts consumer confidence.

Lloyds TSB, one of the issuers contesting the case, saidWe are disappointed with the decision as we have long believed that Section 75 has no validity in relation to foreign credit card transactions. However, given that the House of Lords has confirmed the Court of Appeal ruling, we will continue our policy of paying valid claims for overseas transactions.
This seems a pretty reasonable response, so there’s basically no change. That’s not why I wanted to highlight the case, though. What caught my eye was the comment of one of the judges. Lord Hope made it clear the customer has no responsibility for checking out retailers, saying that

The debtor is entitled to assume that he can trust suppliers who are authorised to accept his credit card.

Here he is surely on the right track, irrespective of how the payment card world actually works. As competition increases and the networking side of payments becomes steadily commoditised, it is the trust and reputation elements of a transaction that remain more difficult for potential new competitors to tackle and therefore the more valuable elements. After all, anyone can connect up a retailer and a bank. But how far does this trust extend?

I suppose the other impact of the ruling, looking forward, might be that acquirers have to do more work to screen retailers and are allowed to keep more of the merchant service charge for themselves in return for accepting some of the liability. There’s definite logic behind the banks’ position: the acquiring bank has the commercial relationship with the retailer, the issuer does not.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

3 comments

  1. Hello David
    There is some logic missing here. “if shit happens”, you get your money back but the bank rarely pays. The retailer picks up the tab through the dreaded chargeback. It is the bane of all online retailers as acquirers assume little to no risk. They simply pass it on to their retail clients.

  2. I sure wish that was truly the case in my situation. I traveled to Mexico and they charged my card in pesos instead of usd, but the charge was still made in usd (which is 10 times higher) so a $35 round of drinks and wings ended up being $350.
    Shit happens, but my visa card company wanted a copy of the receipt which I didn’t have. I was pissed!

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