Banks tighten policies on credit card refunds

Banks are taking a hard line on giving refunds for breach of contract because of a loophole in consumer protection law.

The law in question is the Consumer Credit Act (CCA), and under section 75, retailers and card issuers are equally liable for any breach of contract or misrepresentation; providing the transaction exceeds £100 but not £30,000.

But Computeractive is warning people that, despite a widely held belief, spouses and partners of the card holder who opened the account, the primary cardholder, do not have the same rights when they use their allotted secondary card.

Computeractive reader Ken Smith told us he held a secondary card from his wife’s Barclaycard account and was left out of pocket when the company he had purchased a magazine subscription from went into liquidation.

“I ordered a publication online and paid over £100 using a credit card. However, the publisher went bust before I got my purchase. I didn’t worry as I believed I was covered under section 75 of the CCA. Barclaycard, however, refused a refund,” he told us.

Fifty-eight million credit cards are in use according to data from the UK Payments Association. But although the banks would not tell us how many were held by secondary cardholders, Linda Weatherhead, financial services expert at Consumer Focus, did not believe the banks were playing fair.

She said: “Many credit card customers will be shocked to find out that purchases by their secondary cardholder may not be covered in the same way as purchases by the named cardholder. Credit card companies must make clear to customers exactly what transactions they will insure.

“In the same way that a main cardholder must keep their end of the bargain by paying for purchases made by secondary cardholders, people will expect credit card companies to keep their end of the deal by covering all transactions.”

When we contacted the Office of Fair Trading (OFT) for clarification about the law, the consumer regulator told us that this is a “complex area” and likely to depend on the circumstances of each case.

Although the primary cardholder has to make any claim, even if a secondary card has been used, the consumer watchdog said in its opinion secondary card holders should be protected. It said: “In general, the OFT has taken the view that an authorised second card-user is acting as agent of the principal cardholder.”

But the four major UK credit card issuers we spoke to disagreed.

Lloyds TSB said in a statement: “We would not pay out in this situation as the secondary cardholder is not covered by section 75, as the contract for the goods is not with the principal cardholder (who is the person who has a contract with us).

“Therefore as the principal cardholder would have no claim against the merchant (as he has no contract with them) he cannot have a like claim against us.” Similar views were also expressed by Barclaycard, RBS and HSBC.

Cardholders would have little hope or having this decision reversed even if they took their case to the Financial Ombudsman. The financial statutory body said the banks were acting within the law if the secondary cardholder had made a personal purchase.

It explained that legally only the debtor (the primary cardholder) has a contract with the bank and the CCA makes this clear.

“This is not a joint debt. The secondary cardholder has no liability if the primary cardholder doesn’t pay the credit card debt even if they pay for personal or joint purchases with their card,” an FO representative said.

The primary cardholder would still however be left with the debt that resulted from any breach of contract if a secondary card was used.

However, a spokesperson also told us that it could order banks to extend the protection in certain cases. This would include a purchase made for the primary cardholder’s benefit, such as a joint membership to a service.

In these situations the secondary cardholder is deemed to have acted at the ‘agent’ for the primary cardholder.