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Section 75 vs. Chargebacks: What’s the Difference?

As a small business owner, you are aware of the important role credit cards play in boosting sales. For many of us, our businesses wouldn’t survive on cash payments alone.

However, credit cards come with their own set of risks. There are two crucial pieces of financial legislation you need to be aware of—Section 75 and Chargebacks.

Understanding Section 75

The Consumer Credit Act of 1974 is a significant piece of legislation. It established that lenders must be licensed by the Office of Fair Trading. Section 75 refers to consumer protections.

The legislation holds both traders and lenders responsible if transactions go awry. It covers item that were not delivered, faulty products, and damaged products.

Some examples of actions that consumers could claim Section 75 include (but are not limited to):

  • A consumer purchases a new set of dinnerware. When the package arrives, all the plates are broken.
  • A company goes out of business before rendering the services purchased.
  • A shipment gets lost in the mail and the consumer never receives it.

Some Important Stipulations to Note

There are several key stipulations that determine the eligibility of Section 75:

  • Consumers can wait up to six years to file for a refund.
  • Section 75 only covers purchases that are between £100 and £30,000.
  • Partial payments are also covered. For example, a consumer might split their payment methods–£100 on their card and £200 in cash. Section 75 allows the customer to claim the full £300. Also, as long as the total payment exceeds £100, it doesn’t matter if the customer only paid £10 with the card.

Understanding Chargebacks

Chargebacks are similar to Section 75 claims, yet still quite different. Both act as a form of consumer protection.

There are some major differences to note between the two:

  • A chargeback has a much shorter time limit—usually only 120 days.
  • A chargeback only applies to the amount that was actually charged to the card. It does not cover partial payments.
  • There are no minimum or maximum amounts for a chargeback.
  • The trader is the only one held responsible for the chargeback and must pay the entire refund amount with fees.

The Implications for Both on Your Business

Both Section 75 claims and chargebacks can negatively impact your business in a serious way.

For example, determined fraudsters could use Section 75 as an excuse to steal. Your business could lose profits for big ticket items that “weren’t delivered,” when they actually were (the definition of friendly fraud).

Also, six years is a long time to wait to settle a dispute—but that is exactly what customers can do with a Section 75 claim. That means you could lose a significant amount of profits years after the purchase was made—when you least expect it. If you don’t have the proper amount in savings, you could lose your shirt!

It may seem a chargeback is easier to manage—but it isn’t. Chargebacks come with hefty fines (usually between £11 and £44 for each transaction). If a customer made multiple transactions with your company, you’ll pay the fine on each transaction.

If your business operates online, you could face card-not-present chargebacks. Taking action against card-not-present chargebacks is difficult. If you agree to ship overseas, you could be fighting fraudsters from anywhere in the world.

Additionally, if chargebacks aren’t managed properly, you’ll have to close up shop. The banks only allow so many chargebacks per month. If you exceed their allotted amount, they’ll close your bank account. Then, you won’t be able to accept any credit card payments.

While credit cards bring great earning potential to a business, they also stand the chance of wreaking havoc with potential profits. Beef up your customer service and do all you can to keep credit card customers happy!

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