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Expat Investor : November 2007
When it pays to bare all In the second feature illustrating how the Financial Services Ombudsman deals with complaints, we examine how certain credit card transaction cases (both in the UK and abroad) fall under Section 75 of the Consumer Credit Act 1974. The Ombudsman reports that his office often encounters some common misunderstandings when assessing credit card transaction cases. First among these is the belief held by some lenders that consumers can only claim against them after they have first sued the provider of the goods or services. In fact, no such requirement exists and consumers can choose which party to claim against. If it seems to the Ombudsman that the lender has misled the consumer about the provisions of Section 75, causing the consumer unnecessary expense or inconvenience, this is likely to be reflected in any award made. a further £115 daily charge -- not £1,000. However, the hirer still refused to refund the £1,000 so Mr M contacted his credit card provider. The credit card provider said it was unable to help. It told Mr M that it did not accept any liability under Section 75, and that, in any event, Mr M had not produced sufficient evidence to show he had returned the car on time. Mr M then referred the dispute to the Ombudsman. Complaint upheld The Ombudsman looked at the written contract that Mr M had entered into with the hirer. This made no mention of the terms on which the £1,000 deposit had been paid. There was nothing to suggest the deposit would be forfeited if the car was returned late. The contract did say that an extra INSURANCE CLAIM DISPUTES expatinvestor.com 18 EXPAT INVESTOR November 2007 £115 would be payable for each day or part day that Mr M delayed returning the car. However, Mr M provided credible information backing up his claim to have returned the car on time. Mr M's evidence about what he had been told by the hirer when booking the hire was consistent and convincing, and the Ombudsman accepted that he had paid the deposit on the basis of an assurance that it would be refunded once he returned the car undamaged. The Ombudsman found that the card provider was liable under Section 75 and said it should refund Mr M the £1,000 deposit. It also told the card issuer to adjust the interest on Mr M's credit card account, so that he was not out-of-pocket because of the delay in returning the deposit. Land purchase in sole name but using spouse's credit card account Mrs L negotiated with a land- holding company to buy a plot of land. She said she agreed to buy the land on the basis of a spoken assurance from the company that she would be able to obtain planning permission for the plot. After completing the purchase, Mrs L discovered from the local authority that she was unlikely ever to get planning permission to develop the land. As she had used a credit card to pay the deposit, Mrs L considered that the credit card provider was liable to her under Section 75 for the cost of what she now considered to be 'worthless' land. However, the card provider disagreed, so Mrs L took her complaint to the Ombudsman. The second misunderstanding is the belief by some consumers that Section 75 entitles them to a refund on any purchase made with a credit card. Some consumers confuse the rights to which they are entitled under Section 75 with the automatic insurance coverage that some credit card issuers provide. For Section 75 to apply, in the first instance the following four conditions must all be satisfied: The cash price of the goods or services bought by the consumer must be at least £100 and no more than £30,000. The amount of credit provided to the consumer towards the purchase must not exceed £25,000, and must have been provided to an 'individual' (which includes sole traders, small partnerships and unincorporated businesses, as well as ordinary consumers). The provider of credit must be in the business of lending money, and the credit agreement must have been made in the course of that business. The credit must have been provided to the consumer under pre-existing arrangements between the provider of credit and the supplier of the goods and services. If all these conditions are satisfied, there is a 'lender-borrower-supplier' chain and the lender will have equal liability for misrepresentation or breach of contract by the merchant. There is no automatic entitlement to a refund under Section 75 where, for example, the customer has simply changed their mind. In April 2008, the current maximum financial limit of £25,000 for regulated credit agreements will be removed. The effect of this has not been entirely understood by some consumers and consumer advisers, who have asked the Ombudsman to deal with claims in respect of much larger cash value purchases in 'anticipation' of unlimited Section 75 coverage next year. In fact, the cash price limits within Section 75 will not be affected by the changes in April 2008 -- so the office is unable to consider claims about purchases costing more then £30,000. THE FOLLOWING CASE STUDIES ALL RELATE TO SECTION 75 Return of a deposit for a car hire contract Mr M hired a luxury car for the weekend. He said that when he booked the car, by phone, he was asked to pay a £1,000 'holding' deposit that would be refunded in full when the car was returned undamaged. He paid this with his credit card. Mr M returned the car in good order at the end of the hire period, and said he was told the deposit would be refunded in full within a month. However, that did not happen and when he contacted the hirer he was told that his £1,000 was 'forfeit' because he had returned the car a day late. Mr M disputed this. He pointed out to the hirer that even if he had returned the car late, under the contract he would be liable only for "If it seems to the ombudsman that the lender has misled the customer about the provisions of Section 75, causing the consumer unnecessary expense or inconveience, this is likely to be reflected in any award made. " "Mr M's evidence about what he had been told by the hirer when booking the hire was consistent and convincing, and the Ombudsman accepted that he had paid the deposit on the basis of an assurance that it would be refunded once he returned the car undamaged."