Shoppers who make payments directly from their bank accounts are being cautioned about the potential risks associated with reduced protections against defective products or non-delivery.
Customers of major high street banks, including Barclays, Nationwide, Natwest, Lloyds, and Santander, may find themselves more vulnerable when using this payment method.
Devonlive reports that this growing trend of bank transfers for purchases has raised concerns among consumer advocacy groups, who warn that these transactions do not provide the same level of safeguards as credit card payments.
This is particularly important when purchasing high-value items or booking services like flights and festivals.
Limited Protection With Direct Bank Payments
The growing popularity of services that allow consumers to pay retailers directly from their bank accounts has raised concerns.
Consumer advocacy group Which? pointed out that direct bank payments do not offer the same safeguards as Section 75 of the Consumer Credit Act, which holds credit card companies accountable for defective products and failed deliveries.
This protection ensures consumers can claim refunds in case of problems with their purchases.
Section 75 of the Consumer Credit Act
Section 75 applies to purchases between £100 and £30,000, offering consumers the ability to claim a refund if products are faulty, fail to arrive, or if the seller breaches the contract.
This level of protection is unavailable when using direct bank payments, making it a less secure option.
Transactions Not Covered by Section 75
Section 75 protections do not apply to certain types of transactions, including:
- Withdrawals of cash from a credit card.
- Gambling transactions such as those at casinos or betting outlets.
- Purchases of foreign currency, coins, or digital currency.
- Wire transfers, including money orders and balance transfers.
- Payments for government fines or court fees.
Consumers need to be aware of these exclusions to understand the full scope of protections.
The Advantages of Credit and Debit Cards
Credit and debit card payments come with advantages, particularly through chargeback schemes, which allow consumers to recover money if the product does not meet expectations. Which? editor Jenny Ross warned consumers to think twice before using “pay by bank” services for substantial purchases or bookings.
“We’d urge consumers to think carefully before using [pay by bank] to book events or make substantial purchases – for now, your good old-fashioned credit or debit card may be the best option,” Ross advised.
She further warned:
“Innovations like pay by bank present opportunities for businesses and consumers alike, but they’re not without risk, particularly as they lack the rigorous purchase protections you get when paying by card.”
Despite some basic protections under the Consumer Rights Act—which ensures goods are fit for purpose, accurately described, and of satisfactory quality—Which? noted that enforcing these rights can sometimes be complex.
If a business goes bankrupt or fails to deliver, recovering money can be a more difficult process for those who used direct bank payments.
Financial Ombudsman Service Complaints
The Financial Ombudsman Service in the UK receives thousands of complaints annually from consumers whose claims for reimbursement have been denied by their credit card provider.
This highlights the need for consumers to be vigilant when choosing payment methods.
Why Section 75 is important
One of the most significant protections available through credit cards is Section 75 of the Consumer Credit Act 1974.
This law allows consumers to make claims against their credit card companies for purchases between £100 and £30,000 that go wrong, such as faulty goods or failure to receive a product.
Even if the retailer goes out of business, consumers can potentially claim their money back from the credit card provider.
Unfortunately, Section 75 does not apply to debit card payments, but chargeback can still be an option, albeit less effective than credit card protections.
A need for greater confidence in new payment methods
Which? is calling on regulators to ensure consumers can use new payment methods like “pay by bank” with confidence.
“We’re calling on the regulator to act to ensure consumers can use pay by bank with confidence, but in the meantime, we’d urge consumers to think carefully before using it to book events or make substantial purchases – for now, your good old-fashioned credit or debit card may be the best option.”
A spokesperson for UK Finance, the banking and finance industry body, stated:
“There are a range of options for making payments online which provides customers with choice as to how they wish to pay. Different payment methods do come with different levels of protection and it’s worth being aware of these when shopping online, particularly when making higher value purchases.”
Another key detail is that consumers should always check whether their third-party provider offers buyer protection. This added layer of security can help protect against fraud and issues with non-delivery or faulty goods.
