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Buyer Protection when using PayPal

Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Do you shop online using PayPal? Do you pay with your credit card  Did you know that by using your credit card with PayPal, your important Section 75 buyer protections are actually defeated?

What is Section 75?

The Consumer Credit Act 1974, Section 75, says that if you use your credit card to buy something costing between £100 and £30,000, your credit card company is liable for that purchase, along with your retailer. It's called "joint liability".

This means that you are "double-protected"; in other words you have the same rights against your credit card company as you do with your retailer.

So, if your goods are faulty, fail to arrive or even if your retailer goes to the wall, your credit card firm is obliged to put things right. Technically, you can even insist that they arrange either a replacement or an exchange of faulty goods (even though that would be more easily done in person with your retailer!).

Of course, some card providers will say that you "need to speak to your retailer". However, if you're s75 protected then you can hold firm and insist that your card company deals with it!

Sounds Great! What Else does it Apply To?

Unfortunately, Section 75 only applies to credit cards. It doesn't apply to cash, cheques or debit cards. With debit cards, however, you can sometimes get what is called chargeback protection (see below).

Why credit cards, then? The reason is simple; Section 75 is designed to try to stop you falling into debt due to faulty products.

How Do you Qualify?

To get protected, all you need to do is make sure you pay 1p towards your purchase on your credit card!

In other words, even though the goods you are buying must cost between £100 and £30,000, you don't have to pay all of that on your card. You can pay, for example, £1 on your credit card and the other £99 in cash. As long as you pay at least 1 penny, Section 75 catches your credit card company and you are protected.

Is it Really Worth It?

If the carrot of being able to go after your credit card company for faulty or non-delivered goods isn't enough, Section 75 also makes dealing with disputes easier.

If your retailer is being difficult, your "or else" is to go to Court. With your credit card company, however, you have the option of going to the free Financial Ombudsman Service (FOS).

Furthermore, whilst a Court only looks at the legal position (obviously!) the FOS can look at other things, including standard industry practice and whether or not you have been fairly treated!

So Why is PayPal not My Pal?

Section 75 kicks in only if there is a "direct relationship" between a product (your purchase) and the debt (the payment on your card). This includes standard card purchases, but also store cards.

It does not apply to so-called "indirect relationships". This means that if you make a payment through an agency, then the direct relationship is broken and Section 75 won't apply.

A card machine in a shop (or a card payment online) preserves the direct relationship, since the retailer gets paid immediately.

With PayPal, however, it is different: you pay PayPal and then PayPal pays your retailer (try saying that quickly!).

In other words, PayPal acts as a middleman (an agency) and the direct relationship is broken; Section 75 can't apply.

So is there any Protection with PayPal and Credit Cards?

Yes. You still, of course, have your normal consumer rights with your retailer.

PayPal also has its own so-called "buyer protection scheme". Under this scheme, if an eligible item that you have bought either fails to arrive or does not match the seller's description, you can get back the full amount paid for the item (plus postage and packaging).

Unfortunately, however, the scheme is not as good as Section 75. Why? Well, firstly, it is not law! It is only an internal code.

There are also time limits on when you can make a claim. Lastly, it applies only to delivery and misdescription issues; Section 75 is much wider.

What About Chargeback and PayPal?

Chargeback is similar to Section 75, but offers much less protection.

It applies to debit cards (and also to credit cards - in addition to Section 75). There is no minimum spend requirement (unlike the £100 minimum to qualify for Section 75 protection).

Unlike Section 75, however, chargeback is just a rule of the card payment processor (e.g. Visa or Amex) which the banks which sign up to it must agree to. There is also a 120 days time limit, and it does not cover all your consumer rights.

Whether or not you can get chargeback with a PayPal transaction is a separate issue. It can work two ways.

If, firstly, you use your credit card to load money into your PayPal account, and then you make a purchase using these pre-loaded funds, you will not be covered. Why? The transaction will not be regarded as a card transaction.

If, on the other hand, you use your card directly through PayPal (i.e. no money is loaded on your account and your card is being used to pay) then chargeback should apply.

Anything Else You should Know?

Yes – the issue with Section 75 isn't just restricted to PayPal. It applies to every agency.

So if, for example, you buy something from an Amazon third-party seller (rather than from Amazon directly) using your credit card, Amazon (just like PayPal) will be acting as an agency and there will be no Section 75 protection.

Unlock the LawThis article is reproduced from a couple of great articles which originally appeared in Unlock the Law and The Guardian (click here).  Both are well worth a read if you are an online shopper!

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Written by:
Stephen Hart

Stephen Hart

Founder - Cardswitcher

Former - Chief Financial Officer @ Worldpay

Stephen brings a wealth of experience honed through years in the financial sector, particularly in the card processing payments industry. His illustrious career spans key roles at PwC, Natwest, and the role of CFO at WorldPay, before going on to found card processing comparison site, CardSwitcher. He is passionate about helping growing businesses to understand the card processing landscape so they can make savvy financial decisions.