Covid-19: The impact and implications for chargebacks and Section 75 claims

The immediate impact of Covid-19 and the Government’s response to it is already having a profound effect on businesses ability to deliver goods and services. In some cases, this has seen flights cancelled and entire fleets grounded, businesses unable to fulfil and/or deliver orders for goods and ultimately, a number of businesses entering insolvency.

In all these circumstances, cardholders may seek a refund from the supplier but with businesses operating with reduced staffing levels and others not operating at all, cardholders are likely seek refunds through the chargeback scheme or Section 75 of the Consumer Credit Act 1974. We therefore anticipate a significant increase in such claims as the response to Covid-19 develops.

Whether a cardholder is entitled to a refund through either of these schemes will very much depend on the facts of each case. We have experienced an increasing amount of queries around cardholders rights under these schemes and whether the Covid-19 situation automatically entitles cardholders to refunds. The below hypothetical example covers some of the pertinent considerations.

In the case of a cancelled flight that was paid for on a credit card the cardholder should contact the airline in the first instance. The airline may voluntarily refund the cost in cash or, as has been seen with a number of airlines, offer a voucher for travel at a later date. Some cardholders may, however, decline the voucher and request an immediate and full refund. It is at this point that the cardholder may seek to rely on s.75 – to do so, the cardholder will need to show a breach of contract or misrepresentation. It is arguable that the cancellation of the flight is not a breach of contract, especially if it was in response to Government guidance (i.e. no international travel) that meant the airline was prevented from flying rather than voluntarily choosing not to. If the contract between the airline and the cardholder contains a force majeure clause that covers this scenario then it is unlikely that the airline will be in breach as it will be able to perform the contract at a later date. The voucher is therefore an acceptable remedy for that cardholder.

If, however, the airline has gone out of business or, subsequently goes out of business rendering the voucher worthless, then it is likely the cardholder will be able to rely on the chargeback rules or s.75. In all instances, a query should be made as to whether the cardholder had a policy of holiday insurance which may provide cover for the cancelled flight.

Ultimately, therefore, the cardholder’s ability to rely on s.75 or the chargeback rules will depend upon the terms of the contract between the supplier and the cardholder. If, because of a force majeure clause or otherwise, there has been no breach of contract then the card issuer may have grounds to reject the claim or, if already paid out under the chargeback rules, grounds for clawing it back.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.