Cancelled holiday or event: The credit card refund mistake you must avoid
Shoppers may be more inclined to pay for goods and services by credit card due to the added Section 75 protection or as a means of delaying payment due to insufficient funds.
But with coronavirus causing havoc for the retail, leisure and tourism sectors, under the Consumer Rights Act, if a provider can’t provide a good or service, you are entitled to a refund.
With shoppers due hundreds or even thousands of pounds back on to the original form of payment (credit card), here’s what you need to know in relation to existing debt on a card, or if the refund takes you into a surplus balance.
Plus, the step you absolutely must avoid to prevent your credit score being severely impacted.
Credit card refunds
If there’s an outstanding balance on the credit card, a refund credited to the account will reduce the existing debt.
Finance industry body, UK Finance, says ‘payment allocation’ also determines the order of payments on a credit card, usually applied to balances incurring higher interest rates first. Depending on the credit provider, there may be specific terms on how credits are dealt with.
However, if a refund back on your credit card takes you into a surplus, John Crossley, head of money at comparethemarket.com, said it’s not generally encouraged to hold positive balances on a credit card.
He said: “In the event that a credit card enters a positive balance, speak with your credit card provider about your options for this balance to be transferred to a current account.
“Credit card are not designed to ‘hold’ money in the same way as with a current account or savings account. Consumers have more protections depositing money into a current or savings account and as a result, leaving a positive balance on a credit card indefinitely is not usually recommended.”
Crossley and UK Finance warn Brits against withdrawing the cash from an ATM.
UK Finance, said: “Customers should not withdraw any cash from their credit card before checking the terms and conditions of their credit card first, as an additional fee might apply. If they wish to receive a credit balance from the account, their card provider will let them know how to do this.”
Different providers will have different procedures to help customers in this situation, according to Crossley.
He added: “It is in the interest of credit card providers to make positive balance refunds as easy as possible for customers. This is especially true during what is a financially challenging time for many.”
Meanwhile, when it comes to reporting credit card refunds on credit files and reports, Freddy Kelly, CEO and co-founder of Credit Kudos, said: “If you’re in debt, refunds count towards paying off the balance. If there is a zero balance it would appear as a credit.
“Withdrawing a surplus amount from your credit card should be avoided as it can have a major impact on someone’s credit rating.
“Usually there is a very high interest rate attached and companies will flag cash withdrawals to the credit bureaux which would impact a customer’s credit file.”
Will you receive a full credit card refund?
Aman Johal, lawyer and director of consumer action law firm, Your Lawyers, said businesses are normally obliged to offer customers full refunds if there are cancellations beyond the customer’s control.
“However, customers are bound to the terms and conditions set out when making the purchase. With many businesses writing coronavirus-proof policies into their Ts & Cs, there could be cancellation fees attached for recent transactions in particular. Consumers are urged to check terms and conditions carefully and, if necessary, speak to a customer adviser. An insurer or bank may also be able to offer further clarification about retrieving money owed,” he said.
When it comes to interest fees, Johal said irrespective of whether the service was completed or not, the consumer has still used credit for the purchase and could still be liable for charges.
He said: “In ordinary circumstances, those seeking to make a claim for damages would not typically include a claim for the interest paid on a credit card. However, if consumers consider that they have been unfairly charged interest for using a credit card in circumstances where a successful section 75 claim has been made, they may need to make a separate complaint and use the Financial Ombudsman redress scheme to try and force the bank to repay some, or all, of the interest paid.”