Posted: 4th January 2022
Section 75: Why is it so important to get right?
Section 75 of the Consumer Credit Act 1974 has taken on more importance in recent times, with the FCA looking to introduce new regulations in the consumer credit sector, and the pandemic leading to significant travel cancellations where consumers have invoked their section 75 legal rights. We explore this in more detail and the impact it has on lenders.
What is Section 75?
Section 75 states that a customer’s credit card provider is jointly and severally liable for any breach of contract or misrepresentation by a retailer or trader. It allows a customer to make a claim against their credit card / virtual credit card company to get their money back if a retailer or trader refuses to honour the contract properly -for example, where a retailer has gone bust, services have been cancelled due to Covid-19 restrictions or a kitchen is faulty with no warranty. The legislation only covers single items within a transaction worth more than £100 and up to £30,000*.
Who does it affect?
Section 75 typically only covers scenarios where there is a clear link between the debtor (customer), creditor (lender) and supplier (retailer supplying goods). In most cases, all parties will be involved in the dispute, unless a company goes bust. It can be complex with a number of nuances within the regulation. For example:
- Purchases made using third parties, such as PayPal or Amazon Marketplace, are not usually covered under section 75 due to the break in the debtor / creditor / supplier relationship
- Even if a deposit for the item bought was put on the credit card and the full amount paid for by other means, the credit card company could still be liable for the total amount
- In some circumstances, the credit card company may be liable for consequential costs incurred by the customer associated with remediating the breach of contract which can be costly. For example, independent damage reports
- The regulation also covers all international transactions where it can be challenging to engage with a supplier / retailer
- It may be better to go down a ‘chargeback’ route than invoke a section 75 claim in some circumstances
Section 75 is nothing new for existing credit card providers. However, for many banks / lenders considering new credit card products or buy now pay later (BNPL) products, it is important that they get section 75 right first time.
The rise of new virtual credit cards and BNPL products has drawn the attention of the FCA. With the FCA’s focus on protecting vulnerable customers in the consumer credit market, it is not surprising to hear that the FCA will look to focus on and regulate new BNPL products in the near future.
The FCA consultation on BNPL regulation ends in January 2022. We expect a policy statement in spring / summer 2022 and the new regulation to come into force late 2022 / early 2023.
Additionally, BNPL users will gain the option to take complaints about the products to the Financial Ombudsman Service (FOS), a change that will create further consumer protection.
The importance of getting S75 right
With the increased scrutiny from the FCA, firms looking to introduce new credit card facilities or provide BNPL products that will ultimately be covered under section 75 will need to ensure they have sufficient internal and customer facing policies, processes, operations and oversight to adhere to the regulations and manage an increased volume and complexity of claims.
In 2020 and 2021, holidays, sporting events, concerts and even weddings were cancelled due to Covid-19 measures. This resulted in a significant spike in insurance and section 75 claims. Covid-19 government restrictions can be unpredictable and leave little time for suppliers and consumers to cancel / amend services already paid for and obtain a refund. Given the current environment, this can happen again, at any time, and firms need to be prepared.
The Financial Ombudsman Service received 72% more complaints regarding section 75 claims in 2020 / 2021, including those about delays in processing claims. This shows that many firms are either getting section 75 wrong or taking too long to respond to claims. Either way, section 75 claims are becoming very costly to firms already regulated and, without help, many firms due to become regulated in the near future.
FOS: (FOS Annual Complaints Data 20/21)
How can Huntswood help?
Given the FCA focus on consumer credit and the complexity that section 75 can bring when introducing a new credit product, Huntswood can provide experienced resource to build internal and customer facing policies, processes and oversight, as well as providing a flexible resource solution to resolve claims.
Our in-house SMEs are experienced in the design and build of section 75 policies and processes and we can deploy, at short notice, section 75 claim handlers to ensure our clients respond quickly to fluctuating incoming claim volumes.
Huntswood was engaged by a leading retail bank to design, build and test their section 75 policies and processes. At short notice, we deployed a team of SMEs and resource to ensure our client had robust policies in place before the launch of their new credit product.
Following the design and build of the policies and processes, Huntswood committed to managing the first 100 section 75 claims to ensure any learnings were implemented into them, and to give our client valuable claims handling data.
*Claims for more than £30,000 may be permitted in limited circumstances