The following is a wider issue discussed between the Financial Ombudsman and FSA at www

Section 75 of the Consumer Credit Act 1974 and payments through electronic money institutions

The following is a "wider issue" discussed between the Financial Ombudsman and FSA at www.ombudsmanandfsa.info.

WI-A03

Where section 75 of the Consumer Credit Act 1974 applies, a cardholder who has used their credit card to pay for goods or services has a claim against the card issuer for any breach of contract or misrepresentation by the supplier of the goods or services.

The ombudsman service received a number of complaints against credit-card issuers, where the general circumstances were as follows:

Mr Buyer holds a credit card issued by Card-issuer plc.
Mrs Seller is selling an item on the eBay internet auction site.
Mr Buyer makes the successful bid for the item being sold by Mrs Seller.
Payment is to made through PayPal (an FSA-regulated electronic money institution)
Mr Buyer opens an account with PayPal.
Mr Buyer credits that account with a payment from his credit card issued by Card-issuer plc.
PayPal transfers the payment from Mr Buyer’s PayPal account to Mrs Seller’s PayPal account.
Mrs Seller withdraws the payment from her PayPal account.
Mrs Seller does not send the paid-for item to Mr Buyer.
Mr Buyer is unable to recover his payment through PayPal or eBay.
Mr Buyer claims reimbursement from Card-issuer plc.

Compared to the normal use of a credit card to buys goods in a shop, involving PayPal introduces an additional stage in the chain of payment. So, does section 75 apply in such cases or not? That was an issue with wider implications for card-issuers and their customers.

The FSA agreed this was not a matter for it. Issuing credit cards is not an FSA regulated activity and the ombudsman service was already liaising with the OFT (which is the licensing authority under the Consumer Credit Act 1974).

The question was a legal one, but the amounts involved in each case were comparatively small. The issue was not covered by the contemporaneous court proceedings between the OFT and four card-issuers concerning aspects of section 75.

The ombudsman service invited the chairman of the Banking and Loans Liaison Group (on behalf of the industry) and the Chairman of the Financial Services Consumer Panel (on behalf of consumers) to each nominate an expert to provide input.

In 2005, in the light of input from these experts, and from the OFT, the ombudsman service concluded that section 75 did not apply in the circumstances of the cases that had been brought to it.