Consumer Credit Act:Section 75
Disputes Involving Section 75 of the Consumer Credit Act 1974
Financial Ombudsman Newsletter July 2007
Each year, we receive a significant number of complaints that involve Section 75 of the Consumer Credit Act 1974 – under which, in certain circumstances, the provider of credit is equally liable with the provider of goods or services where there is a breach of contract or misrepresentation.
Up until now, almost all these complaints have involved credit card transactions (both at home and abroad). However, going forward we expect our work in this area to expand, reflecting our new consumer credit jurisdiction and the extension of our existing jurisdiction to include complaints about point-of-sale loans and store cards.
We often encounter some common misunderstandings when assessing these cases. The first is the belief among 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.
Where consumers come to us to check the position, we can point out the lender's mistake. But of course we cannot know how many consumers take the lender's assertion at face value and then spend time and effort trying to pursue a trader who may prove difficult to trace. If it seems to us that the lender has misled the consumer about the provisions of Section 75, and this has caused the consumer unnecessary expense or inconvenience, then this is likely to be reflected in any award we may make.
The second misunderstanding we frequently come across is the belief by some consumers that Section 75 entitles them to a refund on any purchase made with credit. Some consumers also confuse the rights given to them by 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 us 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 we will still be unable to consider claims about purchases costing more then £30,000.
The following selection of recent Section 75-related case studies illustrates some of the issues we have had to decide. See here