Where do you stand if a company goes bust?

The news that Comet has gone into administration proved a timely reminder of how important it is, particularly in the run up to Christmas

12:04 20 November 2012

The news that Comet has gone into administration proved a timely reminder of how important it is, particularly in the run up to Christmas, to protect yourself in case a retailer you've bought something from goes bust before you've received the goods.

 

I have first-hand experience of this, having ordered a kitchen from a company that collapsed on the day it was due to be delivered. Having handed over around £12,500, l felt physically sick when I heard the news.

I'd paid with my American Express card so knew that theoretically I shouldn't lose any money as credit card purchases are protected under Section 75 of the Consumer Credit Act, but there's always the worry that some clause somewhere will mean you don't get refunded.

However, the good news is Section 75 does work! I had the money credited back to my account within two weeks and although I have now been without a kitchen since the end of May, my new one is finally taking shape. In the meantime I have tried virtually every microwave meal produced by Sainsbury's, M&S, Tesco and Waitrose and am well known in the local takeaways. I can't wait to be able to cook again! 
 

 
Why it's worth paying by credit card

 

If you pay for something using a credit card and the company goes bust, or the goods fail to be delivered or arrive faulty, you can get a refund from your card provider. It's all down to Section 75 of the 1974 Consumer Credit Act which states that the credit supplier is jointly liable with the retailer if something goes wrong. It applies for purchases of between £100 and £60,260. The upper limit used to be capped at £30,000 but was increased to £60,260 when the Consumer Credit Directive took effect in 2011.

So if you buy anything costing more than £100, it is well worth paying for it with a credit card, just in case something goes wrong.
What's more, you don't have to worry if your credit card limit isn't high enough to cover the entire cost - as long as you have paid at least £100 with a credit card you the total value of the purchase will be protected. This is a handy thing to know if you're buying something big such as a kitchen or new car because you only need to pay the deposit with a credit card in order to benefit from Section 75 protection.

What to do if something goes wrong

 

If you do have a problem with an item you have purchased and want a refund, the first thing to do is contact the supplier directly. If you have no joy, you should then speak to your credit card provider. Obviously, if the reason why you need to get your money back is because the retailer has gone into liquidation, you should contact your credit card provider immediately.

There is a formal process to go through but assuming the retailer doesn't dispute the claim, it should only take a few weeks for your credit card account to be credited. In the meantime, if you haven't already paid for purchase the card provider is likely to freeze that transaction so you won't have to fork out if your payment is due. Also, you won't have to pay interest. Depending on the card provider interest will either be frozen, or it will be refunded to your account once the issue has been resolved so you shouldn't be out of pocket.

If your claim is in relation to a company going bust you will have to provide documentary evidence of the purchase. With my kitchen, I had to send the signed contract and an email stating the delivery date that had been agreed. You will also have to sign a 'Deed of Assignment' which basically hands the debt over to the credit card provider. It then has the responsibility of recovering the money.

What about debit card payments?

 

Section 75 ONLY covers credit cards so you do not have the same protection if you pay with a debit card. However, there is still a chance you could get your money back under the Visa, Mastercard and American Express chargeback schemes.

As with Section 75 you can make a chargeback claim if you don't receive goods because a company goes into administration or they simply fail to arrive, or if the goods are in some way defective. There is no upper cap on the amount you can claim via chargeback although Mastercard's scheme is only available on purchases above £10.

However, you only have the right to claim within 120 days of realising there is a problem and you must be able to show that there has been a breach of contract.

In order to make a claim via chargeback you must contact your debit card provider. It will then seek to get the money back from the retailer's bank. This is the big difference between chargeback and Section 75. Section 75 is law and the credit card provider and retailer are jointly liable for the transaction. Chargeback is effectively based on customer service and goodwill so it there is no guarantee that you will get your money back.

Therefore, for purchases over £100 it is well worth using a credit card rather than a debit card as you will be in a stronger position in the event of something going wrong.