The Covid-19 pandemic and the Government’s response to it has had a devastating effect on businesses’ ability to deliver goods and services. In particular, we have seen flights cancelled and entire fleets grounded.
Consumers have naturally looked to the airlines for a refund, but as I have been highlighting over the past few weeks, many have either rejected a refund (instead offering a credit or voucher), or have simply not responded.
Many consumers who have experienced the above, and paid with their debit or credit card, have made a claim via the chargeback scheme, or made a section 75 claim. However, the bank/card providers are rejecting section 75 claims, claiming there is no entitlement to claim as there has been ‘no breach of contract’. Here’s my view:
WHAT IS SECTION 75?
In 1974 a new law was introduced into the UK called ‘The Consumer Credit Act 1974’ (‘the Act’). Section 75 of the Act provides that the credit card company is jointly and severally liable for any breach of contract, or misrepresentation by the retailer or trader.
In practice, this means that if anything goes wrong with a purchase you make using your credit card, and you are legal entitled to a remedy (i.e. refund, partial refund, repair or repeat service), but the trader fails to provide such remedy, you can make a section 75 claim.
This right is particularly useful if the retailer or trader has gone bust, or does not respond to your letters or phone calls.
Section 75 of the Consumer Credit Act also applies to foreign transactions as well as goods bought online, by telephone or mail order for delivery to the UK from overseas.
WHAT ARE THE RULES?
To be eligible to make a section 75 claim, you must satisfy the following:
- The price of the goods or services you have purchased must be between £100.01 – £30,000. Note: it does not matter if you did not pay the full amount on your credit card. So, if you purchased flight tickets for £1000, paid £50 on your card and paid the remaining £950 with cash, you can still make a section 75 claim.
- Generally, you must have paid the trader direct. If you paid via a payment platform (such as PayPal), or via an agent (such as a ticket agent), you may not be able to claim.
- There must have been a ‘breach of contract’ by the trader. This means that you must be able to point to something that the airline was legally obligated to do within the contract formed with you, but which it has failed to do so.
It is the ‘breach of contract’ element that is causing the problem with flight cancellations, as the airlines are claiming that they are not in ‘breach of contract’ largely due to the Covid-19 pandemic.
Many airlines are offering either a voucher or a credit to be used for a future flight, as opposed to a cash refund. The banks/card providers are interpreting this as meaning that there is no breach of contract, due to a voucher or credit being offered which they say “is an acceptable remedy”.
I accept that the airlines will generally ‘not’ be in breach of contract, as a consequence of cancelling a flight, as their terms and conditions will allow for this. However, what they do next, in my view, can put them in breach.
The applicable law is known as EC261/2004 (‘EC261’) and it is clear that when a flight is cancelled, the passenger is entitled to a full ‘cash’ refund, unless they agree to accept a voucher, credit or alternative flight.
Most of the airlines’ terms of carriage I have seen clearly state that if there is a conflict between their terms and EC261, that EC261 will prevail (which is what the law would impose anyway). My view is therefore that:
i) the legal right to a ‘cash’ refund, in accordance with EC261, is a term ‘implied’ into contracts with airlines (this means, even though the airlines’ terms do not specifically state you have this right, it becomes an unwritten term of the contract); OR
ii) the fact that the airlines’ terms either do not specifically state that they can give you a voucher (as opposed to cash), or if they do provide for this, the fact that such term is an unfair contractual term, and therefore not binding due to being contrary to the rules in EC261, means that airlines can only give you a non-cash remedy IF you agree to it.
In either of my scenarios above, the airlines’ failure to provide a ‘cash’ refund against your will, means that there is a breach of contract and this paves the way for a section 75 claim. How can the banks/card providers therefore claim that there has been an adequate remedy (i.e. a voucher/credit) when such remedy is contrary to the law?
Important Note: I should highlight that to engage section 75, there must be a breach of contract (or misrepresentation). It is not enough that there is a breach of statutory duty (i.e. a breach of the law), there must also be a breach of an express (i.e. written), or implied term in the contract. This is why it is important that there is either an implied term in the contract that cash refunds will be given, or no contractual right for the airline to force a non-cash remedy.
I would advise that you do the following:
- Ask the airline for a refund first and give it plenty of time to respond in the current climate; If you get a rejection or no response within 8 weeks;
- Ask if the airline subscribes to an alternative dispute resolution (ADR) scheme. If it does, you could lodge a claim; or
- Make a ‘chargeback claim before trying a section 75 claim. In this respect, Martin Lewis (from Money Saving Expert) has been advocating this route, stating “That’s because under the chargeback process, which is part of the Visa, Mastercard or Amex rules, your bank is asking for money back from the holiday firm’s bank, which your bank is unlikely to have an issue doing”; and
- If all else fails, make a section 75 claim using my template letter below:
TEMPLATE SECTION 75 LETTER
Credit card no: 12345678 (“My Credit Card”) Consumer Credit Act 1974 (as amended)
I am writing to make a section 75 claim.
1.1 On [date of purchase] I purchased [insert number] airline tickets from [airline] (“the Airline”) for a flight departing on [date] to [destination airport] (“the Flight”).
1.2 The cost of the tickets for the Flight was £[insert amount] and I paid for this using My Credit Card.
1.3 The Flight has been cancelled due to the Covid-19 pandemic. Following this, I asked the Airline for a full cash refund, but the Airline has rejected this. Instead, the Airline has offered me a voucher.
- My Claim
2.1 Whilst I accept that the Airline was entitled to cancel the Flight, and therefore that this has not caused a ‘breach of contract’, I do not accept that it is contractually entitled to provide me with a non-cash remedy.
2.2 Regulation EC261/2004 (EC261), applies to flight cancellations and clearly states that when a flight is cancelled, the passenger is entitled to a cash refund. The Airline’s terms and conditions of carriage specifically state that EC261 takes precedence and will prevail if any of its terms contradict the legal obligations specified within EC261.
2.3 In the circumstances, the right to a cash refund (as per EC261) is an implied term in the contract I have with the Airline, and its failure to provide me with a cash refund therefore amounts to a ‘breach of contract’.
2.4 It is also clear that offering a remedy that is contrary to EC261 cannot be classed as ‘an adequate remedy’.
2.5 As you supplied the credit for this purchase, I hold you jointly and severally liable for the breach of contract with [airline name] under section 75 of the Consumer Credit Act 1974.
You therefore have a duty to offer me the same solution to the problem as I have already asked [airline name] to provide, namely a cash refund in the sum of £[amount].
I look forward to receiving your response within the next 14 days.