Advice: What you need to know about Chargebacks and Section 75 of the Consumer Credit Act

The effects that the COVID-19 pandemic is having on the travel industry are unprecedented. Recent times have seen us overcome the implications of everything from Icelandic ash clouds to widespread terror attacks, but never before have we experienced an impact as large as this; affecting travel on a global scale.

We continue to wait with baited breath to see whether Abta's valiant efforts will be successful in lobbying the Government to extend the refund period as set out in the current Package Travel and Linked Travel Arrangement Regulations 2018 (PTRs), however in the meantime, it is vital that the travel industry works together and companies do all they can to communicate and negotiate with customers who have had their bookings either cancelled or significantly changed as a result of this pandemic.

Many customers are accepting of the fact that their booking cannot proceed as planned in light of current circumstances and are very much prepared to accept either a change to their dates of travel, so that their holiday can be enjoyed at a date in the future, or a Refund Credit Note for the full value of their booking, which can either be used towards a future booking or exchanged for a cash refund at a later date.

Unfortunately, this is not the case for everyone and, as we are beginning to see, there are a number of customers who are not prepared to accept the above no matter how helpful or persuasive you try to be. Said customers remain adamant that a cash refund must be paid as failure to do so will result ‘further action' being taken.

The most common and perhaps ‘quickest' route we are seeing customers take is that of either a Chargeback request or a Section 75 request (being a request under Section 75 of the Consumer Credit Act).

The two processes are entirely separate and distinct from each other, so let's look at some of the key issues:

What is it?

: A scheme whereby a customer can get their money back from their bank or building society if something goes wrong with a purchase they make.

: A UK law that protects consumers on any purchases made on a credit card between the value of £100 and £30k.

It's part of the Consumer Credit Act 1974 which means a credit card provider is jointly and severally responsible for any breach of contract or misrepresentation by a retailer or trader.

Is it law?

: No – it is a voluntary agreement between card providers and card issuers.

: Yes, Section 75 of the Consumer Credit Act 1974 is a UK Law.

How much is protected / can a customer claim?

: There is no limit; a customer can claim for any amount – being the sum paid on the card for the item in question.

: A customer can only make a claim on purchases between the value of £100 and £30,000.

Even if a customer only makes a deposit payment / or part payment on that card, they can claim for the full value of the item.

Is there a time limit for making a request?

: Yes, you must submit your claim within 120 days of your purchase and payment for service; this extends to 540 days if you paid for a service to be provided in the future (e.g. flight, holiday, etc.)

: Yes, there is a time limit of 6 years for any claim to be made

When can it be used?

: It will depend on the exact terms of the merchant provider agreement, however usually:

• if the customer does not get the goods or services they paid for, including if the company has gone out of business • if goods or services turned out to be faulty, counterfeit or defective • if a customer is charged the wrong amount, or charged twice by mistake;

: If a customer has made a booking with their credit card, they are legally entitled to get their money back if:

• the product or service is faulty; • the company they bought the product or service from breaks their contract with them, including if they go out of business; • the company they bought the product or service from does not deliver what they have promised.

Who pays out?

: Card Company takes the money straight out of company's account and passes back to customer

: The Credit Card company pay out but they are then entitled to recover any monies they pay out plus any reasonable costs in defending the claim from the company

Section 75

The fact of the matter is, if a customer has booked a Package holiday (after 1^st July 2018), they are protected by the PTRs. Said Regulations state that if the package holiday cannot be provided, and a suitable alternative cannot be provided or agreed, the customer is entitled to a full refund to be processed within 14 days.

For a lot of travel companies, compliance with this requirement is just not possible right now but there are a number of other options that are available to the customer and that you should make them aware of.

Make sure you have offered the customer a Refund Credit Note (RCN). As per Abta guidance, the RCN can be used towards a future booking and, when issued correctly, ensures the value of the RCN is financially protected and so would be reimbursed if your travel company failed financially. If the RCN is not redeemed against a future booking, it can be exchanged for a cash refund at a later date.

You should also ask the customer whether they have sought repayment from their travel insurance provider. Many customers will have travel insurance in place which covers them in instances such as this and should be encouraged to claim via this route have they not done so already.

Several card providers (including VISA and Mastercard) have issued specific guidance in light of the COVID-19 pandemic stating that Section 75 requests will not be successful if a customer is unable to prove that they have first made attempts to address the issue with their holiday provider direct and have availed of all other options available to them in the first instance (for exmaple, through their insurance).

You will be given the opportunity to dispute the Section 75 request which you should indeed do if you are not agreeable to the sums claimed or are unable to pay the same. It is vital that you note the date by which your dispute must be raised, and comply with this!

Should you be in a position to do so, I recommend that you issue the customer with a RCN in any event. I say this for a couple of reasons:

• Firstly, it ensures that the customer's money is financially protected so, heaven forbid, if your company was to get into financial difficulty, they would be able to get their money back. Also, if a customer receives an RCN and subsequently has a change of heart, it is there to be issued. (I, for one, will be on the first flight to sunnier climbs as soon as travel restrictions are lifted and so if I have a Refund Credit Note sitting in the post, ready to be used, it is likely to tempt me!)
• Secondly, and perhaps more importantly for us, we can state in our dispute that we have refunded the customer – albeit that it is not a cash refund provided in 14 days. Indeed, you can attach evidence of the RCN with your dispute to support your argument and show that you have complied with the customer's request to the best of your ability.

Any Section 75 refund request brought against an agent in this circumstance is likely to fail provided that you have made it clear in your T&Cs that you are acting solely as agent.  It is the customer's contract with the airline that has been breached, not their contract with you, and so any claim that the customer may have needs to be made against the airline direct.

Chargebacks

In such an instance, the PTRs entitle the customer to a full refund within 14 days. However, make sure you have offered the customer all of the alternatives we mentioned earlier – a change of dates, a Refund Credit Note and the option of claiming off their travel insurance.

In any event, several card providers (including VISA and Mastercard) have issued specific guidance in light of the COVID-19 pandemic stating that chargeback requests will not be successful where a travel provider cancels a booking due to government prohibition or regulation. It is worth checking with your Merchant Services Provider whether they have any similar guidance in place.

A customer would not be entitled to a chargeback in this instance as the package holiday has not been cancelled and, indeed, seems set to go ahead as planned. We of course do not know at this stage whether current Governement advice will have changed by July 17^th, but it is reasonable to believe that it will have and the booking will be able to proceed. If the customer chooses to cancel, that is their decision, however standard cancellation terms will apply in accordance with your T&Cs.

A customer is not entitled to double recovery and so a Chargeback should not be successful in this instance. You should respond to the Chargeback request stating that an agreement has already been reached with this customer and providing evidence by way of support.

It is unfortunate yet certain that, over the next few weeks and months, companies in the travel industry will see a severe rise in the number of s75 and chargeback request received. It is vital that, as an industry, we work together in defending any such requests.