What is Section 75 of the Consumer Credit Act 1974 (s.75 CCA)?
Where a customer has made a booking using a credit card, they are entitled to claim a refund for the booking where the service has not been performed and has resulted in a breach of the provider’s terms and conditions. S.75 CCA makes the card provider and the travel provider joint and severally liable so the customer only needs to notify their card provider to initiate a claim. S.75 CCA can only be used for amounts between £100 and £30,000, but can be used to recover the full amount even if only a small portion of the booking was made by credit card.
When can’t s.75 CCA be used?
Where the booking has been made via a third party, such as a travel agent, a s.75 CCA claim is likely to fail as the direct link between the card provider and the travel provider has been broken. Therefore, if your terms and conditions make it clear that you are acting as an agent for the travel provider, you should inform the customer of this promptly as they will not have a claim against you.
In addition, s.75 CCA cannot be used where there has been no actual breach of the terms and conditions between the travel provider and the customer. For example, if the flight or hotel was still available, it does not matter that the customer was unable to get to it or did not want to travel, because the travel provider has fulfilled its contractual obligation to provide the service.
If the provider’s terms and conditions include a force majeure clause to the effect that the travel provider is excused from performing its contractual obligations where there is a force majeure event (and coronavirus qualifies as a force majeure event), then provided the terms and conditions were properly disclosed to the cardholder, the cardholder will not have a claim under s.75 CCA.
Can I offer alternative dates or vouchers?
Under the PTRs, travel companies are able to offer alternative dates/holidays. If your terms and conditions permit you to offer vouchers, then you can offer alternative holidays/dates or vouchers/credit and the customer will not have an s.75 CCA right to claim as there will not have been a breach of contract.
So what are chargebacks exactly?
A customer can attempt to pursue a chargeback via their card issuing bank and according to the relevant card scheme rules, such as Visa and Mastercard. Unlike s.75 CCA, this is not a legal right; it is a discretionary refund service offered by the card schemes.
A chargeback can be filed for debit, credit or pre-paid cards and it does not matter that a third party, such as a travel agent, was used for the booking. There is also no limit on the amount recoverable (apart from a minimum of £10 for Mastercard). However, the time periods for filing a chargeback are much shorter than for an s.75 CA claim. For Visa, customers have 120 days from the transaction date or 120 days from the last date the customer expected to receive the service (not to exceed 540 days from the transaction date) to file a dispute, whereas they have six years to issue an s.75 CCA claim.
When does a consumer have a valid chargeback claim?
Where the customer initiates a chargeback dispute on the basis the service has not been provided, they will not have a claim if the service was in fact available but they chose not to go or made the cancellation themselves.
Visa and Mastercard have both published communications clarifying chargeback rights.
Visa’s position is that where the travel provider has cancelled the service due to government prohibition or regulation, then the customer will not be entitled to make a claim as the law and government regulation supersedes the card schemes’ rules on card disputes.
Mastercard states that a customer may still have a claim if they cannot travel due to government prohibition or regulation. However, for Intra-EEA and domestic European transactions, the transaction will not be covered by chargeback if it would be sufficiently covered by a bond.
The card schemes’ expectation is that the customer’s issuing bank will advise the customer to attempt to resolve the dispute with the travel provider directly. Where the travel provider cancels the booking or changes it to an alternate date the customer does not wish to accept for any reason other than government prohibition or regulation, then the customer could have a right to claim.
Therefore, if the travel provider cancelled the booking before the government issued advice against travel abroad, that being 17 March 2020) in the UK, then the customer may have a right to claim.
If the travel provider cancels the service for any other reason, such as insolvency, the customer is also likely to have a chargeback claim.
What steps can I take to avoid chargebacks?
Communicate and be helpful
Good communication is key to keeping customers happy. Many customers will be fairly understanding of the need to cancel their travel arrangements due to coronavirus, as long as their refund request is acknowledged and appears to be progressing. It is when requests seemingly disappear into a black hole that customers get frustrated.
Therefore, being proactive and contacting customers who are likely to make a claim and providing updates via communication channels means that customers will be less likely to go straight to their issuing banks and try to initiate a chargeback.
Create template response letters
Consider creating template emails or letters to send to customers to acknowledge their refund request and explaining that processing is a little slower than normal due to the organisation having to deal with the impact of coronavirus.
Where your terms and conditions permit you to take certain courses of action such as to offer alternatives or issue vouchers, ensure you are familiar with the terms and can guide customers to the relevant provisions.
Where you are an agent, you should also have template letters ready to send to customers explaining that you are not the travel provider and so the customer does not have a right of s.75 CCA claim against you.
We would also recommend creating a template response to use when responding to the card issuer. This should outline the reasons you reject the customer’s claim and can reduce the administrative burden of responding to multiple chargeback requests.
Incentivise rebookings
Consider whether you should offer incentives for rebooking the arrangement rather than cancellation, such as a discount on future bookings or an upgrade. This will likely prove much cheaper than having to pay out for chargebacks.
It is estimated that for a $100 chargeback, the merchant usually ends up paying out $240.
Signpost to travel insurers
Refer customers to their travel insurers, if they have one. Travel insurance is likely to cover the customer for any booking made before coronavirus became a known event. For many insurance providers, this is 13 March 2020, but the customer should refer to the terms of their specific policy and contact their provider.
If their insurer rejects their claim, you may ask for a copy of the rejection from the customer.
