Section 75 explained: How spending on a credit card can give you huge protection on things you buy

This piece on Section 75 is by The Treasurer from Team Monevator. Check back every Monday for more fresh perspectives on personal finance and investing from the Team.

I was once scared of credit cards. I believed saving up for things I wanted to buy was always the right thing to do. Credit cards were the work of the devil. They were designed to trap you in debt at hideous interest rates.

I still believe those things to some extent. If I want something, I’ll save up for it. I only ever splash out if I have a real need, or if I consider it excellent value for money.

And I still think some credit cards – such as those with eye-watering interest rates pushing 40% – are awful. Especially those that target sections of society who can least afford it.

Yet as time has gone on I have also grown to understand that credit cards are essentially tools. Albeit tools with a dangerous edge.

Think of a credit card as like a very sharp knife. Extremely useful in the hands of a Michelin star chef. Less so – and potentially dangerous – when wielded by an amateur cook.

In other words, use credit cards in the right way (often contrarily to the goals of the card provider) and you can benefit, at no cost to you.

Get it wrong and you could find yourself servicing interest for years. That will leave your dreams of early retirement in ruins.

Cashback is a quick credit card win

An obvious way to use a credit card to your ‘advantage’ is cashback.

With a cashback credit card, you earn small amounts of money every time you spend on it. You’ll profit on everything you buy, so long as you pay off the balance in full every single month. That way you avoid paying interest.

I put ‘advantage’ in quotation marks above, because card providers still benefit when you use their card. Retailers must pay the card provider a small fee for each transaction. So using a cashback credit card as I’ve described won’t make your card provider lose sleep.

Of course your card provider won’t mind if you miss a payment and owe them a nice bit of interest, either. So unless you enjoy contributing to a banking giant’s annual Christmas party, set up a monthly direct debit to regularly clear your debt.

What is Section 75?

Now onto another way you can make credit cards work for you – to use one solely to benefit from Section 75 legislation.

Section 75 is part of the Consumer Credit Act. (Section 75 of it, shockingly enough).

This legislation dates back to 1974. The legal eagles who wrote it thought it would be unfair to have someone borrow to pay for something on a credit card, only to not receive the item, or to suffer issues down the line. Especially if they were still in the process of paying for it!

Today, almost 50 years later, Section 75 remains a powerful consumer tool:

• Pay for something on a credit card that costs between £100 – £30,000 and Section 75 will automatically apply to your purchase. (As long as the thing you’ve purchased is for you).

• Section 75 means the card provider which you buy from is equally liable for your purchase. So if anything goes wrong, you can knock at their door for a refund.

Importantly, you don’t have to pay for the whole item on a credit card for Section 75 to apply.

Pay just £1 or 25p –or any other humorously low figure – on a credit card, and your whole purchase is protected. Up to £30,000.

So if you’re buying a new car, then agreeing with the dealer to pay £100 on a credit card will give you protection on the whole purchase price.

You may find this a bit silly. But some retailers may put restrictions on the amount they’ll accept on a credit card, due to the processing costs involved.

(Since 2018 retailers can no longer charge a fee to use a credit card. However they can refuse to accept them).

Section 75: What are the main benefits?

Section 75 is particularly good for dealing with cases whereby a retailer has gone into liquidation.

For instance, you order a sofa and the supplier goes bust between the time it takes your payment and the delivery date – which can often be months away. Section 75 protection means the card provider can refund your cash. This sure beats making your case to an appointed administrator. There you’d probably have to settle for pennies in the pound, at best.

Section 75 doesn’t apply only when a retailer has gone bust. Say you want a refund for a defective or missing item and you’ve had no luck convincing the retailer to give you your money back. Section 75 enables you to seek a refund from your credit card provider instead.

A Section 75 claim doesn’t mean you’ll definitely be refunded – the card provider may not agree with your claim. But it’s fair to say that a banking giant is far more likely to pay up than a struggling retail provider keen to keep your cash. Financial companies usually have deeper pockets.

Even if your Section 75 claim is turned down, that’s not the end of the story. When you’ve paid on a credit card, you have the added option of taking your case to the free Financial Ombudsman service. It will then make a ruling on the behaviour of your card provider.

Remember, Section 75 makes both the retailer and card provider equally liable. So you don’t have to take your refund case to the retailer first. You can go straight to the card provider if you wish.

Section 75: What should I look out for?

There are no real drawbacks of Section 75. However there are some things to watch out for should you wish to rely on the protection.

Firstly, if you’re paying for something with Section 75 protection in mind, ensure it’s for your own personal use as the cardholder.

While the law isn’t set in stone, you may suffer some pushback if you make a claim via Section 75 for an item or service that wasn’t intended for your own use. (That said, one popular consumer website suggests that group bookings should be covered.)

Secondly, for Section 75 to apply make sure the thing you’re buying is actually over £100.

Annoyingly, if you buy two single flight tickets costing under £100 each – with a combined cost over £100 – you probably won’t have any luck with a Section 75 claim. However, a return ticket costing more than £100 means the cover will apply. It’s considered a ‘single item’ in the eyes of the Consumer Credit Act.

Thirdly, there may be an issue with relying on Section 75 protection if you buy via a third-party intermediary. More on that below.

Finally, if you’re buying something costing less than £100, don’t assume that you haven’t got any protection at all.

Lesser ‘chargeback’ protection applies for all purchases made on either a credit or debit card. This protection doesn’t have a legal basis. Rather it is part of rules associated with the major card processors (Visa, Mastercard, and Amex).

With chargeback you can ask your card provider for a refund. However unlike Section 75, under chargeback your card provider will seek a refund from the retailer you purchased from, rather than reimbursing you directly.

While it’s much less powerful than Section 75 protection, chargeback is still a consumer tool worth remembering.

My own personal horror stories

Knowing I’m a personal finance wonk, friends and family members often come to me for unofficial guidance. Despite this I’ve found convincing them to sign up for a credit card – solely for Section 75 protection – a tough sell.

That’s ironic, given that in my personal life I’ve seen the importance of paying for big purchases on a credit card.

A few years back, a former flatmate contacted me for help. She had paid upfront for a teeth whitening service. The provider went into liquidation when she was only a quarter of the way through her treatment. I was horrified to learn she’d put the £3,000 treatment on a debit card.

Unfortunately my efforts to convince her to use a credit card for all big purchases in future couldn’t bring back her lost cash. And I’m sorry to report that her chargeback claim was unsuccessful.

Similarly, but fortunately not so devastating, a family member recently purchased a large camping item from a retailer based in continental Europe. The value was just shy of £1,000.

The first I’d heard about this purchase was when I was contacted to ask for help when the item didn’t arrive. I asked what was used to purchase the item. Yes, you guessed it, a debit card.

A package did eventually turn up, albeit in a very damaged box. It was the wrong item! The cost to send it back was over £80. Other than explaining to my family member how easy it would have been to claim back the cost from a credit card provider, there was nothing I could do.

The same family member also experienced difficulty in claiming a refund for a long haul flight last year that was later cancelled due to Covid-19.

While Virgin Atlantic eventually gave way and refunded the money many months later, this was another instance where Section 75 would probably have come up trumps.

Third-party complications

If you want to rely on Section 75, try not to use a third-party service if you can.

There have been a few stories of people missing out on Section 75 protection due to a requirement that there must be a direct link between the customer, the credit card company, and the supplier or retailer.

Using a third-party website, such as a travel agent, may therefore mean you won’t be able to make a claim under Section 75. That’s because the travel agent may be seen as ‘breaking the link’ between parties.

I say ‘may’ as the rules on this are pretty blurred, and there’s conflicting information across the web.

To play it safe, always book direct if you can. So if booking a flight over £100, for instance, it’s probably best to go directly to the airline’s website rather than going through a travel agent, if you want to maximize your Section 75 protection.

Section 75: The takeaway

I’m wary of calling anything a ‘no-brainer’. We should always consider the drawbacks of any particular product.

Yet, as long as you don’t use a credit card to recklessly borrow, signing up for a credit card and using it to pay for anything over £100 really is a no-brainer, due to the free Section 75 protection you get.

But don’t just take my word for it – let’s hear from some readers. Have you ever gone to your card provider to make a Section 75 claim? What was your experience? Let us know in the comments below.

You can see all The Treasurer’s articles in a dedicated archive.