Does section 75 protect additional cardholders?
"I want to make a section 75 claim. Does it matter that I'm only an additional card user of the credit card I used to pay, not the main cardholder?"
The rights of additional credit cardholders under section 75 are a little unclear.
Several credit card companies have made the case that the legislation does not apply if a purchase made on an additional card does not benefit the main cardholder.
take me to the conclusion »
Cardholders can ensure that purchases are covered under the legislation simply by getting the main cardholder to pay for larger purchases.
But that's no good if the additional cardholder has already paid.
And anyway, it doesn't answer the question: why does it matter?
Why does it matter?
Facetiously, we could say it matters because banks like loopholes in section 75 law that mean they don't have to pay out.
But they're not inventing loopholes. This problem rests on an important part of consumer credit legislation called the 'chain of purchase'.
To see the problem more clearly, it's useful to look at an example.
The Financial Ombudsman Service has published a case study about a woman who purchased some land on her husband's credit card. Despite assurance from the landholders that the plot could be built on, she was refused planning permission to develop it.
As she had paid by credit card she sought compensation first from the estate agent and then from the card company under Section 75 because she was sold (what she deemed) "worthless land".
The card provider also refused to pay out and the case went to the Financial Ombudsman.
They also rejected her claim not because of the worth of the land but because, although she had bought the land in her sole name and intended to develop it herself, the card she used to pay for it was for an account in her husband's sole name.
Even though her husband had allowed her to have an additional card in her own name on the account, the account itself was in his name and set up to provide him credit.
Chain of purchase
As our full guide notes for section 75 to apply, there has to be a strong 'chain' between the person who makes a purchase, the lender and the supplier.
In the above example, the chain was broken because the borrower and buyer turned out to be different people.
Or, to put it semi pictorially, this is the chain needed for a successful claim:
Customer/cardholder >> lender >> shop
An additional cardholder, adds another link to that chain, breaking it:
Cardholder >> customer >> lender >> shop
This is also true, for example, of purchases made on a credit card but processed by a third party like Paypal.
Just as with an additional cardholder, in that case the main cardholder has agreed for another entity with different interests to get involved in the borrowing transaction.
The card provider hasn't agreed to lend to Paypal and they haven't agreed to lend to an additional cardholder on your account.
However, there are some cases where Section 75 does apply, even when the additional cardholder paid.
Say, for example, that a couple bought a membership in joint names and paid using a secondary card on the husband's credit card account.
If, for whatever reason, there is a good case for a section 75 claim, both will benefit from the membership so it should be irrelevant that there's just one card.
Note that this is a good rule of thumb, but it's not as simple as it sounds.
Let's say that you're an additional cardholder. You buy two flights - one for you, one for the main cardholder - and then, classic section 75 crisis, the airline goes bust.
Now, do the two tickets count as:
- a purchase that benefits you both, in which case you'd both be covered;
- one purchase that benefits the main cardholder and one that doesn't, one ticket covered or;
- a purchase made on an additional card that doesn't benefit the main cardholder (solely), so no cover.
We can imagine a card provider arguing any one of those angles (though the last is not that compelling, it does have one big thing or rather one big £0 in it's favour).
It's also worth noting that we are talking about additional cardholders here and not joint account holders.
That's because credit cards normally offer borrowing to one person and then extend additional cards. However, that's not the case with various other borrowing arrangements where section 75 could apply.
Loans, for example, are often held in joint names. In that case, both or either party would be able to make a section 75 claim no matter who was the main beneficiary when the loan money was spent.
The take away
So what's the outcome for additional cardholders - what should they do?
First, generally speaking, to minimise the risk of having to take a claim to the Financial Ombudsman service it's best to avoid using additional cards for large purchases.
If, as an additional cardholder, you do pay and want to be covered, you'd better be sure it's on something that benefits both you and the main cardholder.
Finally, note that section 75 cases are considered on a case by case basis.
While the rules above are a good guide and although precedent does play a role in card providers' decisions, it's often worth making a claim even when the case doesn't seem to fit the normal template, as in our flights example above and to be persistent because example after example shows that it pays.