Why review into future of 'Section 75' protections should concern credit card users: Sarah Coles

‘Section 75’ means that if we pay for something on a credit card – worth between £100 and £30,000 – and the retailer lets us down, the card company is jointly liable for delivering the goods or services. Rather than having to squeeze the money out of the retailer, we can get a refund from the lender, and it’ll be up to them to chase the company responsible.

It can kick in when items are faulty, if you don’t get what you were expecting, or if the company breaks its contract with you. It has also proven a real boon in recent years, when companies have gone out of business before delivering the goods, and those who bought on a credit card have still been able to secure a refund. You can take advantage of this up to six years after buying the product, even if you have since cancelled the card.

The review of the Act is designed to replace it with something more up-to-date. This is makes sense. The world of borrowing was very different in 1974 than it is almost 50 years later. So, for example, things like buy-now-pay-later weren’t even a twinkle in the eye of the credit industry back then. The fact that the FCA has taken over the regulation of debt gives them a chance to make changes.

It also means they can address risks that the industry wasn’t alive to back in the 1970s when the Act was written. So for those who wrestle with more complex numerical calculations, they can change the rules to let companies present information in pounds and pence rather than percentages. They can also ditch reams of jargon, so people aren’t baffled by how their lender talks to them. And they can revisit some of the proscribed letters that are sent when people run into financial difficulty - which are currently so alarming that they can put people off asking for help from their lender, and can make life even harder for those who are struggling with mental health difficulties.

But this overhaul also means Section 75 is in the frame. The good news is that overall the government is committed to keeping the protection, so the industry isn’t seeing this as an opportunity to do away with legislation that costs them money. However, there’s still a risk they could water it down significantly.

So, for example, some of the people who responded to the consultation argued that the credit card company should only be liable for the amount of credit they’ve provided, rather than the overall liability of the provider. At the moment, for example, if you put the deposit for a holiday on your card, the whole cost of the holiday will be covered. A change might mean you need to put it all on plastic to get the same protection.

The rules currently also cover consequential losses. So, for example, if you bought a ticket for an event that was cancelled, as well as claiming for your event ticket, you may also be able to claim for your train ticket and hotel. Some people argued that this shouldn’t be included within the new rules. There were also question over whether people should be able to claim from their credit card without pursuing the vendor first, which could make reclaiming cash more complicated and time-consuming.

There were also calls for changes to fix one of the problems with Section 75 - which may come as a surprise to those who weren’t aware there were any problems with it. There was a call for more clarity on transactions which aren’t directly between a credit card and a seller – when the debtor-creditor-supplier chain is broken. This sounds unusual, but happens more often than you think. If you buy a concert ticket from an agency rather than the venue, buy a holiday through a comparison site, or buy through a marketplace like Amazon Marketplace, you’re not buying direct, so the chain is broken, and you don’t have Section 75 cover.

If you want to benefit from the protection, instead of using a ‘third party’ when you buy items, you can try to buy direct from the seller. So while you might track down a cheap flight through a price comparison site, you can then go to the airline and buy direct. It’s not always possible. So, for example, some concert tickets are only available through an authorised ‘seller’ rather than the venue itself. In those cases you need to decide whether you’re prepared to take the risk.

You may wonder why it’s worth bothering to ‘up’ your Section 75 game at this stage, but nothing is actually going to happen to it in much of a hurry. For the Act to change, it’s going to need new legislation, which is a slow and laborious process. The next stage is more detailed consultation next year, and then we’ll have the general election on the cards. This may mean little parliamentary time for new legislation, and then if there was a change in government it could throw the whole thing into question.

It means that rather than worrying too much about the changes that may or may not come further down the track, right now it’s best to focus on taking full advantage while it lasts.

Public sector pay

The public sector pay offer from the government this week comes with a nasty sting in the tail. The fact that the income tax and national insurance thresholds have been frozen until 2028 means the government will be syphoning hundreds of pounds of every pay rise back into their own pockets. In some cases, they’re taking almost £1,500 of the pay rise themselves.

It's hitting them at a time when few can afford to spare a penny. Public sector pay rises have closed the gap on private sector pay growth, but still average 5.8% - well behind inflation. The HL Savings & Resilience Barometer found that, on average, households working in the public sector have just £214 left at the end of the month, so it only takes one unexpected expense to throw them off track.

After this pay rise, they’ll be better off, but thanks to the stealth tax, not by as much as they think. A speciality doctor with two years of service earning £50,373, and getting a 6% pay rise, for example, will actually get an increase of just 4.6% in their take-home pay.

It demonstrates just how horrible the impact of this stealth rise is for all of us at a time when our financial resilience has taken a beating, and every penny counts. It remains to be seen whether 4.6% will be enough to keep pace with inflation, or whether, after all of this, public sector workers will still be forced to manage with less buying power with every passing month.

SARAH COLESHead of Personal Finance and Podcast Host for Switch Your Money OnHargreaves Lansdown