The Consumer Lawyer

To credit card, or not to credit card?

By Dean Dunham – 30 January 2022

I’m always telling consumers to pay with goods with their credit card if the purchase price is greater than £100.01, as this will give them protection under section 75 of the Consumer Credit Act. There are certain conditions that have to be satisfied to make a section 75 claim; one of the important conditions is that you must have paid the trader ‘direct’. For this reason, it has always been considered that if you pay with your credit card via PayPal, that you will not be able to make a section 75 claim if something goes wrong, as the payment goes via PayPal and is therefore not direct.

However, a recent decision issued by the Financial Ombudsman Service (FOS) has potentially given hope to those who pay with their credit card via PayPal, as it suggests there are occasions when a section 75 claim will be valid. Here’s what you need to know

The case

Alex Dawson  purchased decking online for £2053 and paid on his credit card via PayPal guest checkout. When it transpired the decking was faulty he made a section 75 claim after the trader refused to help. Lloyds Bank rejected his section 75 claim, stating that as the payment was made via PayPal it broke an all-important ‘DCS’ chain – a link formed between a ‘debtor, creditor and supplier’ (i.e. he did pay the trader direct).

Mr Dawson took his claim to FOS.

The FOS Ruling

FOS rejected the position put forward by Lloyds Bank making an important distinction between PayPal as an online wallet and payment processor, finding that use of the later (i.e. using PayPal simply as a guest check out function) does not break the chain and therefore does not invalidate a section 75 claim.

Effect of ruling

This is only a FOS ruling and is therefore not legally binding. However, it is an indication that this is how FOS will treat these claims moving forward.

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