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Legal advice: credit firm pays after company goes bust

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Profile photo of Thomas Holloway Thomas Holloway Lawyer
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The refund procedure can be complicated when a company goes into administration, but that doesn’t mean there aren’t ways to recover your money.

Which? Legal member Lynn bought a domestic heat pump from Envirosolar, but it was faulty and she couldn’t get Envirosolar to fix it.

Lynn was forced to reject the goods, but she couldn’t get a refund. This was because Envirosolar went into administration and stopped trading.

As she paid on a credit card, we advised her to make a Section 75 claim to John Lewis Financial Services, her credit card provider.

However, as Envirosolar had taken Lynn’s credit card payment through PayPal, John Lewis was reluctant to cover her costs.

Going to the Ombudsman

As John Lewis Financial Services had rejected Lynn’s claim, we advised her to go to the Financial Ombudsman, which agreed John Lewis Financial Services should cover her losses.

Section 75 of the Consumer Credit Act 1974 allows consumers to hold their credit card provider jointly liable for a breach of contract, but only where there is a ‘debtor-creditorsupplier’ relationship.

Paying through intermediaries such as PayPal can ‘break the chain’. If this happens, you can contest the matter to the Financial Ombudsman.

In this case, Lynn received £8,156 to cover the cost of the system, plus the losses she incurred as a result of it being faulty.

John Lewis Financial Services said:

“Despite requesting confirmation from the payment platform that they had an agreement with the retailer, which would have enabled a Section 75 claim to be processed, John Lewis Financial Services and Mrs Gough were unable to obtain this.

After being contacted by the Financial Ombudsman Service, the payment platform confirmed there was an agreement. This enabled us to process the claim”

Have you ever had issues getting a refund after a company went into administration? Did you manage to get your money back?

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Comments
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malcolm r says:
31 August 2020

This appears to be a lack of cooperation from PayPal until forced into compliance. It would be useful if Which? did a survey of PayPal users ( Which?Connect and a Convo?) to examine whether others have been badly treated (or not) when trying to get a refund.

I don’t use PayPal and don’t see the attraction. I’d be interested to hear the benefits over a credit card.

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John Ward says:
31 August 2020

Judging by a number of the complaints to this site about scams perpetrated by ‘traders’ overseas I assume that the attraction of using PayPal for the payment process is that it gives access to sellers that are denied merchant facilities by the major credit card issuers and so possibly lower prices, but it comes without the consumer protections provided by the Consumer Credit Act 1974.

If a seller is not able to process a credit card payment, that should sound a warning bell in the buyer’s mind. Unfortunately there is often no way of knowing that a trade is taking place outside the scope of UK jurisdiction. This is not related to the case reported in the Intro to this Conversation where I assume that PayPal was merely being used by the customer as a channel, or platform, for processing a credit card payment, although it has not been explained why that route was chosen.

Do credit card companies [e.g. John Lewis Financial Services] have the right to decline payments via intermediaries? If not, they are at risk of having to meet s.75 claims without redress against the merchant in administration or liquidation. In the present case, can JLFS claim back against PayPal who ultimately admitted that they had “an agreement with the retailer”?

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wavechange says:
31 August 2020

I have used PayPal for years to purchase inexpensive products from eBay sellers. eBay provides a convenient source of obsolete parts that have been discontinued by manufacturers and companies that specialise in spare parts. I presume that individuals and small companies buy up the remaining stocks and sell them on eBay.

I remain reluctant to give my credit card details to a small company that might not have adequate security measures in place or might not be honest. PayPal is often the only option for buying goods from businesses run by individuals. I usually have between £50 and £100 in my PayPal account and I have not had a single problem. I look for sellers based in the UK.

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John Ward says:
1 September 2020

I see no problem with using PayPal in such circumstances, where the values are below the £100 s.75 threshold anyway. For larger amounts it is prudent to buy from a seller who will accept a credit card payment so that consumer protection is available.

Like NFH (below) I think the Financial Services Ombudsman was misguided in the case reported and that John Lewis Financial Services might have conceded for reputational reasons rather than strictly on the merits of the case.

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wavechange says:
1 September 2020

Now that credit card surcharges are no longer permitted I do pay amounts over £100 by credit card. With companies failing as a result of coronavirus, this advice from Thomas is timely.

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NFH says:
31 August 2020

I’m getting fed up with perverse decisions by the Financial Ombudsman. They often fail to consider the relevant legislation, even if you hand it to them on a plate by referring them to the specific section of the legislation. Their decisions completely overlook and ignore relevant legislation. If you escalate the complaint from the initial investigator to an ombudsman, then the ombudsmen always agree with their original investigator, again overlooking the relevant legislation.

Therefore for Section 75 claims I no longer waste months waiting for the Financial Ombudsman to make a perverse decision and instead jump straight to issuing a County Court Claim against two defendants – the merchant and the credit card issuer.

The only matters for which the Financial Ombudsman is reliable and effective is poor customer service by a financial firm. Courts award money in respect of actual financial loss and very rarely make awards for distress and inconvenience, whereas the Financial Ombudsman routinely makes awards for distress and inconvenience, typically £50, £75 or £150. This is where the Financial Ombudsman has a significant advantage over the courts.

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