We’ve never been so spoiled for choice when it comes to the different ways we have to pay for things. Despite predictions of its demise, cash is still widely used by the public (and will be for the foreseeable future). And a whopping 185 million cheques were written in 2020, proving that the chequebook hasn’t been banished to dusty drawers around the land just yet.

But you can pay a high price if you chose to pay for goods or services by some of the options out there, while others payment methods provide us with greater consumer rights when things go wrong. This becomes particularly important if you are attempting to get a refund from a business due to a dispute.

Here’s my guide of the things to look out for.

Bank transfers

Online banking has become so ubiquitous we think nothing of transferring money to friends and family by our phones or online accounts. Bank transfers are easy to do and with the introduction of ‘two-step verification’, there are extra levels of checks in place to ensure that the money is going to the right account. You’ll also encounter warnings about common scams during the process, so make sure you read them and don’t just click to make the payment.

The faster payments system, introduced in 2014 means money goes to the other person’s account more or less instantly. While this is convenient, it does pose a problem. Scammers know that bank transfers are hard to recall without registering a formal fraud dispute. Many scammers have used instant bank transfers as their preferred payment method when tricking people in to transferring their life savings. As soon as the money hits the fraudulent account, the cash is syphoned off in smaller chunks to other accounts where it ultimately it vanishes. There is an exceptionally tight window to call your bank and get the cash back if you think you’ve been tricked.

When you remove the fraudsters from the equation, when you pay someone by bank transfer, the cash can’t usually be recalled. That’s because the bank has no way of knowing if there isn’t a dispute between you and the other party. For example, you could have purchased an item from a retailer or individual seller, then tried to recall the cash back on receipt of the goods. In these circumstances the bank will usually decline to get involved, though if you’ve made a mistake and transferred money to the wrong account, the bank should at least try to get the money back.

As a consequence, you should only use bank transfers to pay money to people you know.

Credit cards

If you’ve spent over £100 and under £30,000 on your credit card and the goods or services don’t turn up or are ‘misrepresented’, you may be able to make a claim for the money back from your credit card provider. This is known as making a ‘section 75’ claim under the Consumer Credit Act. We often mention section 75 claims in our Money Mentor guides as the act is an extraordinarily useful piece of legislation.

If you are in dispute with a business that has sold you goods or services but they don’t work, don’t turn up or aren’t as advertised then you should complain to the business first, but failing that, you make a claim to your credit card provider. When making a claim you should spell out what’s gone wrong, what you though you were getting and why you are unhappy. The card provider will then investigate and give you an answer. You can escalate your complaint to the Financial Ombudsman Service for free if you are unhappy with a decision.

Useful though it is, the Consumer Credit Act is an old piece of legislation and though it’s been updated twice since, it was written in a different time. The way we live and shop now means there are lots of gaps in the legislation and our understanding of how it works.

For example, there’s an incredibly complicated clause in the act known as the ‘debtor-creditor-supplier’ agreement. What this means in practice is your rights to claim money back from the card provider only apply if you buy direct from the supplier of goods. Sounds straightforward? What about using an online travel marketplace to buy hotels and flights? Or using PayPal to make a payment for goods? In theory, both of these transactions are not covered by the act, though there are signs that some card providers might consider the complaints under certain circumstances. I’d give it a go if you’re not sure – but buy direct wherever possible.

Debit cards

If you make a payment on your debit card and something goes wrong, then your card provider may be able to ‘charge back’ the money. This is an industry scheme (not a law) where your debit card provider recalls your cash. This also works with credit cards too and the credit card provider may attempt a chargeback before looking at a section 75 claim, because it’s easier.

Chargebacks are not guaranteed in every case though. In very general terms, if you’ve paid for goods or services that aren’t provided you may be able to charge back your cash. There are time limits for making a claim, usually 120 days from the date you make your purchase (this varies with some card providers). However, disputes over quality of goods can be subjective and where things aren’t black and white, you may be told to deal with the retailer to resolve the dispute.

Chargebacks are especially useful if you read in the news that a business is looking likely to go bust. If this happens after you’ve paid for goods or services but not received them, then contact your card provider urgently and ask them to recall your cash.  Cases like this can usually be processed there and then on the phone (time is of the essence). In many cases though, you’ll be asked to fill out a short form explaining what has gone wrong.

PayPal and e-payments

Millions of people use online ‘e-payment’ services like PayPal. These e-payment services are essentially third parties that act as a conduit between you and the retailer. E-payment services are regulated and generally offer some degree of consumer protection – albeit through their own dispute resolution schemes.

I hear an equal number of complaints from buyers and sellers about these schemes and there are a couple of rather random and arbitrary timescales for some types of disputes. But paying using an e-payment business gives you more protection than you’d get from making a bank transfer.

You can also go to the Financial Ombudsman for free if you’re still unhappy with how a business has addressed your complaint. But on the downside, because these firms are ‘third parties’ so you can’t make usually make successful section 75 claims.

Of course, fraudsters are always looking for the cracks in the system. One recent scam involves fraudsters posing as retailers who ask you to send money using PayPal’s ‘friends and family’ option, as a way to reduce fees. However, this type of payment works in the same way as a bank transfer. So when the money has gone, it’s gone – and it’s not covered by PayPal’s dispute resolution service, leaving you nowhere to turn.

Cash, cheques and money transfer services

If you pay by cash, or use an international transfer service like Western Union, the money is not ‘recallable’ if something goes wrong. So be wary if you are asked to use these methods of payment. The same goes with cheques. The clearing system for cheques has changed significantly over the years, but there are still ways to ‘game’ the system. Be cautious about paying a stranger by cheque for this reason – or accepting one.

Cash is still king for many people, particularly as the cost-of-living crisis has focused people on keeping a closer eye on their spending. Needless to say, paying by cash poses some problems if disputes arise further down the line. So keeping a tight hold of your receipts for purchases remains your best route to protecting your consumer rights.

Featured in Times Money Mentor – Martyn James


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