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ombudsman news

issue 78

July/August 2009

claiming back payments made with plastic cards

From the complaints we receive involving plastic cards, it's clear that some consumers think that if they use a plastic card to pay for goods or services, they can always claim back their money from the card provider, should things go wrong. This is not necessarily the case. Any right that the consumer might have to get a payment refunded through the card provider will depend on:

  • the type of plastic card used
  • the medium through which the payment was made; and
  • why they are seeking a refund.

Using a plastic card does not provide an automatic cooling-off period, or always allow the payment to be countermanded later. So consumers are likely to be disappointed if, for example, they use a plastic card to place an order for goods, in the expectation that they will be able to cancel the payment if they subsequently change their mind.

However, the position is different if:

  • the goods or services are paid for (or partly paid for) with a credit card
  • the cost is over £100 and not more than £30,000; and
  • there is either a misrepresentation (a false statement of fact) or a breach of contract by the supplier.

In such cases, consumers may be able to rely on their legal rights under section 75 of the Consumer Credit Act 1974. This gives consumers the same right to claim against the provider of credit as they would have against the supplier. So consumers may be able to recover the same amount that they paid with their card - or more, or less, than that sum.

Another common belief is that pursuing a claim for a refund through the credit provider is a last resort and that consumers must first have:

  • brought legal proceedings against the supplier
  • obtained a judgment; and
  • tried to enforce it.

In fact, there is no such requirement. If a consumer is misled on that point by their credit card provider, and then spends time and money on unnecessary legal proceedings, they will be entitled to compensation for that (as happened in case 78/01 below).

However, it is important to note that claims can only be made under section 75 where the payment was made using a credit card. Other types of plastic card payments (for example, debit cards or charge cards) are not covered by section 75. Consumers and card issuers can sometimes get confused on this point, as we illustrate in case 78/02.

The contracts that card issuers have with their card network providers are likely to have provisions that - in certain circumstances - allow card issuers to attempt what are known as "chargebacks". If successful, a chargeback allows a card issuer to claim back a payment from the retailer's bank, on the consumer's behalf. However, the provisions allowing chargebacks are not consumer rights provided by law. And the terms of the contracts - including the grounds on which a chargeback may be attempted - vary from network to network.

Consumers are not generally aware of the circumstances in which a chargeback might be attempted. However, we expect card issuers (who should understand the terms and conditions of their own contracts with the network providers) to consider making a chargeback claim if the consumer has made them aware of a situation where this might be appropriate.

Chargeback attempts are not guaranteed to succeed, and card issuers cannot force suppliers' banks to refund money paid by plastic card. Although card issuers will sometimes make an interim refund to their customer's account, pending the outcome of the chargeback, this is likely to be removed if the chargeback is unsuccessful. So it is important that the card issuer makes it clear to the consumer that their card account may be re-debited if the supplier's bank does not agree to the chargeback.

There are time limits for attempting a chargeback, and we would expect the card issuer to bear that in mind if a consumer contacts it about a situation that might entail a chargeback request. If, in a particular case, the card issuer fails to act within the time limit, and we conclude that a timely chargeback attempt would probably have been successful, then we may say the card issuer should compensate the consumer for its failure to act in time. This is what happened in case 78/04 below.

Sometimes the consumer has made the plastic card payment through a third-party payment processor, rather than direct to the retailer. This is quite common in purchases made from online retailers. In such cases the consumer/credit provider/supplier chain that is required to bring a claim under section 75 may be broken - and the card issuer's right to attempt a chargeback may also be affected.

Finally, in some of the cases that we see, the consumer argues that they did not give their consent for the total amount that the retailer charged to the card. Irrespective of whether there could be a claim under section 75 or the chance of a successful chargeback, the consumer may have grounds for recovering the payment from their card issuer. Case 78/05 provides an example of a consumer who was partly successful with a complaint of this type.

issue 78 index of case studies

  • 78/1 - credit card provider tells consumer to take legal action when retailer fails to deliver a purchase made by credit card
  • 78/2 - consumers ask their bank to refund plastic card payment made for mail-order purchase
  • 78/3 - consumer complains about bank's refusal to help her recover plastic card payments
  • 78/4 - consumer says bank failed to give sufficient help to recover debit card payment made abroad
  • 78/5 - customer authorises debit card payment made over the phone but says an incorrect amount was debited from his account

78/01
credit card provider tells consumer to take legal action when retailer fails to deliver a purchase made by credit card

Soon after he retired from his job as a farm labourer, Mr M bought a new bed from a local furniture showroom. He paid £450, using his credit card, and was told that the bed would be delivered within four weeks. However, this date was put back several times. He was still waiting for the bed to arrive six months later, when a neighbour told him that the furniture showroom had closed down.

Unable to get more than a recorded message when he rang the showroom, Mr M contacted his credit card provider. He explained what had happened and said he wanted to reclaim the £450.

The credit card provider told him he would probably get his money back. But it said he would first have to take legal action against the company that owned the furniture showroom and get a court judgment in his favour.

Mr M was alarmed to learn this and asked if there was any other way in which he could get his money back. He explained that he had no experience of legal matters and was nervous of taking a business to court, not least because of the expense this might entail.

The credit card provider assured him that using the small claims court was very straightforward - and that he would get his money back as soon as he produced a court order to 'validate' his claim.

Mr M contacted the small claims court but soon ran into difficulties. He was unable to provide the answers to some key questions, including the correct name and address for the company that owned the furniture showroom - and whether or not that company was still trading. He spent several weeks trying to obtain the information he needed, without success.

His daughter-in-law then persuaded him to contact the credit card provider again and ask for a "straightforward refund". She told him she thought it unreasonable that he should have to cope with so much inconvenience and worry.

However, the credit card provider turned down Mr M's request on the grounds that he had "not provided proof of a successful claim" against the furniture showroom. Mr M then came to us.

complaint upheld
It was clear from the information Mr M gave us that the furniture showroom had gone out of business and that he was not going to receive the bed he had paid for. We were therefore confident that he had a claim for breach of contract. Under section 75 of the Consumer Credit Act 1974, he was entitled to bring his claim against either the retailer or the credit card provider.

We pointed out to the credit card provider that Mr M had no legal obligation to take proceedings against the furniture showroom before making a claim under section 75. He had been caused real inconvenience, and some expense, in acting on the credit card provider's wrong advice.

We said the credit card provider should refund the £450 to Mr M's credit card account, together with interest, backdated to when he had made the payment. It should also refund the expenses he had incurred trying to take legal action. And it should pay Mr M £350 in recognition of the inconvenience he had been caused.

78/02
consumers ask their bank to refund plastic card payment made for mail-order purchase

Mr and Mrs V decided to buy a suite of conservatory furniture they had seen in a mail-order catalogue. They phoned the retailer and paid for the furniture using their bank debit card.

When the furniture was delivered a few weeks later, the couple found that the fabric used to cover the seats was a slightly different shade of green than that shown in the catalogue. They later told us that although the colour was "not quite right", they had thought they "could live with it".

Three months later, however, they asked the retailer to take the furniture back and refund their money. They said they were particularly disappointed with the "misleading" way in which the colour of the seat covers was shown in the catalogue. They added that - overall - the suite looked "cheaper" than it had appeared in the catalogue.

The retailer refused their request for a refund. It drew their attention to prominently-placed wording in the catalogue. This said that every effort was taken to reproduce colours accurately, but that there might be a slight variation between the actual colour of an item and the way it appeared in print.

The retailer referred to its returns policy, highlighted on its sales invoices and in its catalogue. In accordance with this policy, the retailer would readily have given Mr and Mrs V a refund - on a "no questions asked" basis - if they had returned the furniture within four weeks of receiving it. However, it was now more than three months since the furniture had been delivered - and it was not faulty, so the retailer was not prepared to give Mr and Mrs V their money back.

The couple were unhappy with this outcome. They believed that paying for goods by plastic card automatically entitled them to a refund, if they later decided not to keep their purchase. They therefore contacted their bank and asked it to help them get their money back.

Mr and Mrs V's bank then entered into a prolonged period of correspondence with them about whether or not the retailer had misrepresented the colour and quality of the furniture. Eventually the bank concluded that there had not been any misrepresentation. It explained that the bank did not therefore have any liability under section 75, so it could not refund the couple's money. Mr and Mrs V then came to us.

complaint not upheld
We asked the bank to send us some documents relating to the case - including a copy of the couple's card statement showing the purchase in question. It was clear from this statement that Mr and Mrs V had made the payment from their current account, using their debit card.

As this had not been a credit card transaction, the bank could never have had any liability under section 75, regardless of whether or not there had been any misrepresentation on the part of the retailer. The bank had, apparently, failed to spot how the payment had been made - and Mr and Mrs V had (understandably) not appreciated why that was significant.

We explained to Mr and Mrs V why they were unable to claim their money back from the bank. We said we had looked at whether the bank might have had grounds for making a chargeback request (a request to claim the payment back from the retailer's bank). However, we had concluded that this would not have been possible.

The bank agreed to our suggestion that it should pay Mr and Mrs V £100, in recognition of the inconvenience caused by its poor handling of the matter.

78/03
consumer complains about bank's refusal to help her recover plastic card payments

Mrs W had for some while been paying-in to a retailer's Christmas savings scheme. She had set up a regular payment on the debit card linked to her current account, enabling the retailer to use her card details to take ongoing payments, without the need for her to be present to authorise each transaction.

When the retailer suddenly went out of business, Mrs W lost all the money she had saved in the scheme, totalling over £150. Her husband told her he had seen a newspaper article about banks reclaiming money for customers by using chargebacks.

Mrs W then asked her bank to request a chargeback for her, so she could get her money back. However, the bank said this was not possible. It told her the terms and conditions of its card network had no provision for chargebacks in situations like this, described as "cardholder-not-present transactions where no goods are provided".

Mrs W was reluctant to accept that the bank could not help and she asked to see the card network's terms and conditions. When the bank refused her request, Mrs W complained that she was being "fobbed off" - and eventually she referred the matter to us.

complaint not upheld
We could understand Mrs W's disappointment when the bank told her it could not help. And we could see why she became suspicious, after it refused to show her the terms and conditions that prevented it attempting a chargeback for her.

The bank sent us a copy of its contract with the card network, and we were satisfied that there was no basis on which the bank could have attempted a chargeback in order to recover Mrs W's payments. We explained to Mrs W that although we had considerable sympathy for her situation, we were unable to uphold her complaint.

78/04
consumer says bank failed to give sufficient help to recover debit card payment made abroad

While on holiday in Spain, Ms K used her debit card to buy some gifts in a tourist shop, at a total cost of 240 euros.

A few weeks after her return home, she received her bank statement and was shocked to see that the transaction had been charged at 2,400 euros. She contacted her bank and sent it a copy of the receipt she was given when she bought the gifts.

The bank pointed out that the receipt, which had been printed from the card terminal in the shop, was for 2,400 euros. Ms K admitted that she had not noticed this - either at the time or subsequently. However, she insisted the goods she bought had totalled only 240 euros. She said the shop-keeper must have made a mistake, unless he was deliberately trying to cheat her.

The bank agreed to "try to retrieve the overpayment." Several weeks later, having heard no more about this, Ms K contacted the bank again. It told her it was still looking into the matter. Over the next few months, Ms K contacted the bank a number of times to try to discover what was happening. Eventually, the bank wrote to tell her that it had not been successful in getting her money back. Ms K then complained to us that the bank had not done enough to help her.

complaint upheld
We were satisfied, from Ms K's evidence, and the nature of the goods in question, that she was telling us the truth when she said she had bought only 240 euros-worth of goods from the shop.

In response to our request for evidence of the action it had taken in this case, the bank showed us a copy of the letter it sent to the shop's bank in Spain. This letter simply asked the Spanish bank if it would "be prepared to send a refund cheque for the overpayment". The Spanish bank had replied that it did not see why it should do this and Ms K's bank had left the matter at that.

We could not see any good reason why the bank had not made a standard chargeback request through the proper channels, outlining the reason for the request. We thought that, if the bank had done this, then it was more likely than not that a chargeback request would have succeeded. However, as the time-limit for a chargeback had by this stage long expired, the opportunity had been lost.

In the circumstances, we decided the fair outcome was for the bank to refund to Ms K's account the difference between the amount she should have been charged and the amount she had actually paid. We said the bank should pay interest on this amount, backdated to when the transaction took place. We said the bank should also pay Miss K £100 for the inconvenience it had caused her.

78/05
customer authorises debit card payment made over the phone but says an incorrect amount was debited from his account

Mr A had sold his flat in Yorkshire and was moving to take up a new job in Kent. As he did not have much furniture, he decided to hire a self-drive van and carry out the move himself.

After researching various van-hire companies on the internet, he contacted D Ltd - which advertised itself on its website as "the one-way hire specialist". He arranged for a van to be delivered to him in Yorkshire on a specific date - and to be collected from him in Kent three days later. He said he gave D Ltd his debit card details over the phone to pay for the hire, which he was told would cost a total of £179.99.

The move and the van-hire went ahead as planned, but two weeks later Mr A discovered that D Ltd had taken a payment of £628.81 from his account. When D Ltd insisted that this payment was correct, Mr A complained to his bank.

He said he had given D Ltd his debit card details in good faith. However, a much larger sum than agreed had been taken from his account. Initially, the bank credited his account with the disputed payment. However, it later re-debited this sum, saying that D Ltd had provided confirmation that he did indeed owe £628.81.

Mr A complained that the bank had acted incorrectly. He said it should re-credit his account with the entire amount paid to D Ltd. When it refused, Mr A came to us.

complaint upheld in part
D Ltd had provided an invoice in response to the bank's request for details of the costs Mr A had incurred. We asked to see this invoice, and noted that it was based on a two-way hire and was dated some two weeks after Mr A's account had been debited. We were therefore not convinced that it was an accurate representation of what had been agreed with Mr A on the phone.

We also noted that D Ltd had told the bank that it never provided one-way van hires. This did not accord with what it said on its website.

After looking at all the available evidence, we were satisfied that Mr A authorised the use of his card details to pay the cost of the one-way hire, plus fuel. We were not satisfied that he had agreed to pay a total of £628.81. Equally, we could not see that D Ltd would have agreed to his paying a total of only £179.99, as this sum did not include the cost of any fuel.

We did not agree with Mr A that, in view of the inconvenience he had been caused, he should not have to pay anything at all. We calculated that the total cost of his one-way van-hire, plus fuel, was £275.10 and we saw no reason why he should not pay that amount.

So we said the bank should refund him £353.71 - the difference between the amount we thought he owed and the amount that was debited from his account. We said the bank should pay interest on the £353.71 for the time he had been without it - and that it should also pay him £50 for the inconvenience he had been caused.

image of ombudsman news

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.