A recent failure of a health spa (Creditors Voluntary Liquidation) where vouchers were purchased as gifts (both directly with the company and via third party providers) but not redeemed before the company ceased to trade highlights the protection that is offered by paying with “plastic”.
1. The safest way – pay by credit card.
If you pay by credit card for a purchase that costs between £100 and £30,000 you are protected by Section 75 of the Consumer Credit Act 1974. This means that your credit provider must take the same responsibility as the retailer (is equally liable) if something goes wrong with a purchase.
What if the purchase is for less than £100?
Fear not. Although Section 75 does not apply, the chargeback scheme (detailed below) also works for credit card purchases less than £100 although there is a £10 minimum spend for MasterCard purchases (no minimum with Visa or American Express).
2. The middle ground – pay by debit card
Chargeback operates in a similar way to Section 75 but it is a voluntary scheme and is not enshrined in law. It applies to most debit cards, prepaid cards and can also be used for credit cards (although best to use Section 75 to try and reclaim monies for purchases between £100 and £30,000). Your claim to your card provider must be made within 120 days of your purchase or payment for service and all purchases are covered regardless of amount (other than £10 minimum for MasterCard purchases) although you can only claim for the amount that you put on the card.
3. Potential for problems – paying via PayPal
PayPal effectively acts as an agency and there is no direct relationship between the purchaser and the retailer. Therefore Section 75 does not apply if you pay PayPal via your credit card. However, PayPal does have its own Buyer Protection Scheme but there are a number of restrictions which makes the scheme not as useful to the consumer as Section 75. If you use your debit card to pay via PayPal, the Chargeback scheme may work but there are restrictions.
The potential issues of paying via PayPal are the same with many other companies who effectively act as an agency (for example Amazon where they are not selling their own goods but the goods of a third party i.e. not “sold and dispatched by Amazon”.)
Although this area is a bit of a minefield, and there are additional exceptions to the general principles stated above, following a few simple rules will give you the best possible protection for your hard earned money.
