Section 75 claims and chargebacks through the pandemic and beyond
The following article appeared in ABTA's issue of Travel Law Today - Spring 2022.
With lockdowns and other COVID-19 restrictions coming to an end across Europe, many UK holidaymakers will be planning their next break. UK travel businesses will breathe a long-awaited sigh of relief after two years of a pandemic that threw many into a severe liquidity crisis.
Even so, it is likely that travel businesses will still face a large number of Section 75 claims and chargebacks from customers who change or cancel their plans, especially now that travellers are more aware of the remedies they can seek. Sara-Jane Eaton and Rishab Reitz, DWF’s International Claims Handler outline the key legal points of Section 75 and chargeback claims, and explore steps that ABTA Members can take to protect themselves.
Section 75 claims
Section 75 of the Consumer Credit Act affords protection to consumers using a credit card to buy goods or services that cost over £100 and not more than £30,000. Section 75 holds the credit card company jointly and severally liable for any breach of contract or misrepresentation by the retailer or trader. Customers who want their money back after holiday cancellations frequently use this legal mechanism.
Chargebacks enable customers to get their money back from participating banks if there is an issue with their purchase. There is no limit on the amount a customer can claim. Chargebacks are mainly used by those paying with a debit card.
Challenges for travel businesses
Customers have used both methods to get their money back if their holiday plans were cancelled or changed due to the pandemic.
Many travel businesses were hit with Section 75 claims or chargebacks even though they offered refunds or were only acting as intermediaries between customers and tour operators and had no contractual liability towards the customer.
Other travel businesses ended up issuing refunds twice as chargebacks or Section 75 claims were successful when a refund had already been issued. In some cases, customers were not even entitled to a refund (eg because they chose to cancel their holiday due to FCDO advice although travel would have been possible) but still made a successful chargeback request or Section 75 claim.
Although travel restrictions have been lifted in many countries, customers will probably continue to make Section 75 claims and chargeback requests where travel plans are changed or cancelled.
Measures travel businesses can take
If you are acting as a travel agent, explain this to your customers (who will often not be aware that their contract is not with you) while assuring them that you are trying to get their money back from the tour operator or airline. If customers are aware of your efforts to recover their money, they are less likely to make a Section 75 claim or chargeback request.
Ensure that your terms and conditions clearly state that you are acting solely as an agent. You can use this as evidence when disputing any Section 75 claim or chargeback request. If an airline or tour operator cancels, you can then redirect any claim to them as the customer’s contract is with them.
Check your supplier agreement and ensure that you can seek an indemnity from the supplier if there is a chargeback. You must, however, keep your supplier and tour operator well informed of customer complaints and steps taken to resolve these. Your supplier is much more likely to agree to an indemnity clause if this is the case.
If you still receive a Section 75 claim from a customer, you may be able to make a Section 75 claim yourself against the supplier if you used a credit card for payment (for example a virtual credit card) and you are a sole trader, small partnership or unincorporated business. Such businesses are covered by the Consumer Credit Act when acting as a consumer. The same should apply to chargeback requests under the relevant scheme rules.
If your customer has booked a package holiday and it is cancelled, tour operators are generally obliged to issue a full refund within 14 days. You should, however, offer the customer alternatives such as a change of date or a voucher as the claim will settle if the customer accepts such an alternative. If customers still want a refund and you refuse to grant it, they will probably succeed if they make a Section 75 or chargeback request.
Do review the reasons for any cancellation. If the package holiday was cancelled by the customer because of Government-imposed travel restrictions, there may not be any breach of contract. A chargeback may also fail as, for example, VISA has issued guidance stating that chargeback requests will not be successful where a customer cancels a booking due to government prohibition or regulation.
If the FCDO has advised against travel (but there are no prohibitions) and the customer chooses to cancel their package holiday on this basis, the customer is unlikely to succeed in making a Section 75 claim or chargeback request unless they have cancelled in line with the provider’s terms and conditions and you have still failed to issue a refund.
Where it is the customer’s fault that they cannot travel (eg because they contracted COVID-19), Section 75 claims or chargeback requests generally will not succeed (except for accommodation cancellations made in line with the terms and conditions of the accommodation provider).
If you receive a Section 75 claim for a multi-seat booking (eg for a family) and each individual seat is below £100, no refund is due if individual tickets were purchased. If, however, the Section 75 claim is for a “family ticket” of more than £100 you must issue a refund (provided the other Section 75 requirements are met).
Customers are entitled to make a Section 75 claim even if they have only made a part-payment. Businesses should note that recovery is not limited to the deposit – if the customer paid the rest in cash, you would still be obliged to issue a full refund. Customers can also make chargeback requests for part-payments. However, recovery is limited to the amount paid by card.
Section 75 claims or chargeback requests on refunded bookings
In some cases, travel businesses issued a refund but customers still succeeded in making a Section 75 claim or a chargeback request. This may arise where customers approach the travel business for a refund but subsequently decide to pursue a Section 75 claim or chargeback request as they do not know if and when a refund will be issued by the travel business.
It is important to keep customers informed as to whether a refund will be made and what the processing times are. You should also ensure that any refunds are processed back to the same card that was used for the booking. This helps avoid Section 75 claims or chargeback requests.
If you still end up making two refunds, be aware that customers are not entitled to double recovery. Most customers will return any overpayment if you explain the problem to them. If the Section 75 claim or chargeback request has not yet been approved, you should dispute it, showing evidence that an agreement has been reached with the customer and that a refund is being issued.
Sara-Jane Eaton – Partner, Head of European Group, International Claims and Travel Group, DWF Law LLP