Credit where credit's due

They may charge extortionate interest rates, but making large purchases on your credit card does have some advantages, says Alan Wilson. Section 75 of the Consumer Credit Act means that your card company is obliged to protect you if anything goes wrong

When you're buying expensive items, it might be worth considering using your credit card for one simple reason: the chances of getting redress are doubled if a problem develops. You can exercise your legal rights against either the retailer or the credit card company - extremely useful if the business from which you've bought gets into financial difficulties or goes bust.

Credit card purchase also comes in useful if you have any complaints about your goods: if they are faulty, not as described or not delivered at all (in other words, if there has been a breach of contract). In many cases, it makes sense to try and sort things out with the retailer first, but you may prefer to go direct to the credit card company, especially if the retailer is likely to be difficult. Don't be deterred from going direct. Credit card companies can reclaim from the retailer any money they pay out to you, and the success of their businesses depends on there being a high number of retailers that accept their cards. It's up to them to ensure that they grant credit card facilities only to retailers who play fair.

Credit card companies' equal liability with a retailer is enshrined in section 75 of the 1974 Consumer Credit Act. It comes into effect when a "supplier" has an arrangement to give credit from a "credit grantor" such as a bank. This includes an agreement to accept credit cards.

The rules state that the amount of credit can be no more than £25,000 and the value of the goods or services in dispute must be between £100 and £30,000. It's the value of the goods or services that counts, not the amount you actually pay using the credit card. You might buy something only partially with your credit card, using the card for either the deposit or the balance. You might have a claim that is more than the cost of the thing you buy, such as claim for loss of enjoyment on a ruined holiday. The credit card company is equally liable for the whole lot if there's a breach of contract with an individual consumer.

Section 75 covers credit agreements where there is a direct relationship between a supplier and a credit grantor, meaning it covers hire purchase and similar deals as well as credit cards. It would, therefore, cover a loan arranged through a car dealer to buy a car, but it would not apply to a loan arranged independently with a bank, even if the bank knows that the purpose of the loan is to buy a car.

Furthermore, there is no protection through debit cards linked directly to current or other bank accounts; nor do the rules cover charge cards where you have to pay off the full bill every month. Still unsure? Check the original agreement you signed - it will show whether a card is covered by the Consumer Credit Act.

Section 75 does not apply if you buy something with cash withdrawn on your credit card, or with a credit card cheque. This holds true even if you use a cheque to pay a business which cannot accept credit cards, as there is no supplier/credit grantor link.

Watch out for three grey areas. First, some credit card companies deny liability for purchases made outside the UK. Others may accept claims only up to the value of a foreign transaction made with the credit card. The Office of Fair Trading is currently asking the courts to decide on this long-standing controversy. A high court hearing is expected next spring.

Secondly, a credit card company's equal liability might extend only to the principal cardholder and not to additional holders such as a husband or wife. This point has not been tested in the courts. It may be wise to make sure the principal cardholder always signs for large purchases.

Finally, section 75 does not apply to credit agreements made before July 1 1977. In practice, the banks that issued credit cards before that date have agreed to accept equal liability, but they may accept liability only up to the value of the credit card transaction. If you have any worries about this, consider cancelling the credit card agreement, then either apply for a credit card from a different company, or re-apply to your original card supplier once you are sure the original agreement has been cancelled.