Section 75 success - Third Party Payment Processor

Associate
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663
Hi Everyone,

I just wanted to write this up in case anyone is going through something similar. I have posted this on the MSE forums but thought I'd do it here too.

In summary, in April 2019 I bought a car (2009 BMW 335i). I paid £102.50 on my credit card through the dealers card machine that was provided by a third party payment processor, Square. The rest was paid by bank transfer.

Less than a week later the engine had a catastrophic failure. I had BMW inspect the damage at a cost of £1200 and a estimate to fix of £22,000. The dealer had provided a third party warranty which did a follow up investigation and deemed that the failure existed prior to purchase, refusing to cover it. This took a few months during which the dealer let me know in no uncertain terms that they weren't interested in helping me and begun to ignore me.

At this point (June 2019) I opened a Section 75 claim with my credit card company.

Section 75 basically says that where a single purchase is made of a product between £100 and £30,000 using a credit agreement (wholly or partially) that the creditor is equally and severally liable as the supplier is during instances of breach of contract or misrepresentation.

They argued that the debtor-creditor-supplier chain had been broken and then a lot of time was spent arguing about that until after about 1.5 years they relented and refunded me under Section 75.

Here is a timeline of events:

6/6/2019: S75 claim raised with CC.

01/07/2019: CC reject claim citing a break in the DCS chain and that "Arguably, the transaction has been financed by Square, which means that your card was used to purchase the credit on a Square account, not the services".

09/07/2019: I reply with a letter citing a previous ombudsman decision (DRN0797157) that states that there is no evidence that "four or more" party agreements break the chain.

12/08/2019: Having not heard back from CC I raise a complaint with the Ombudsman as it has been over 8 weeks since the initial complaint. I state my case as follows:
My key points:
1. Section 75 applies here because the vehicle was absolutely unfit for purpose. It was not of satisfactory quality and I later found evidence of misrepresentation. There were issues that I have since found that were not mentioned in the advert or at time of purchase (leaking shock, leaking tyre, faulty battery).

2. My contract with DEALERSHIP for them to supply the third party warranty as an additional warranty was breached when they issued a chargeback on the premium.

3. I believe that CC company have presented an invalid argument to support their rejection of my claim. They appear to make the point that due to the purchase being processed through Square, the debtor-creditor-supplier chain has been broken. They further stated:
"Arguably the transaction has been financed by Square, which means that your card was used to purchase the credit on a Square account, not the services."

3a. As I have detailed in Attachment 6, In a previous ombudsman decision a court case was referenced that supports the view that a four-or-more party agreement does not affect the debtor-creditor-supplier chain. This decision was in the favour of the consumer.

3b. As for their second argument, I have since found that this same argument was presented by a Mr Hapgood QC representing several credit providers in the Supreme court. It was rejected by the judge and abandoned by the lawyer, as referenced in Paragraph 56 of the case summary referenced below.
Citation - Paragraph 56: Office of Fair Trading v Lloyds TSB Bank Plc & Ors [2006] EWCA Civ 268 (22 March 2006)
http://www.bailii.org/ew/cases/EWCA/Civ/2006/268.html

I fail to see how there can be any other argument but that my credit agreement with CC company was used to finance the purchase of the vehicle from DEALERSHIP. No account was made by, or existed between myself and Square, they simply facilitated the transfer of funds from myself to DEALERSHIP via a Square terminal. It was the credit agreement between myself and CC company made at the time of purchase, on the premises of DEALERSHIP, that provided the financial basis for the purchase of the vehicle from DEALERSHIP. Therefore, Section 75 applies.
26/09/2019: I receive a final response from the CC stating that they will not uphold my complaint, stating "In this instance, the chain has been broken as the merchant used a third party payment processor, Square."

17/10/2019: I have not been assigned an investigator by the ombudsman but I update them with the current state of affairs as well as some further points:

My previous key points already explain why I believe the chain is intact, and the claim under Section 75 is valid, but I would like to add some further supporting evidence:

4. It is clear that the use of a third party payment processor does not automatically break the DCS chain, as CC Company continue to claim. I understand in cases such as Paypal and other "E-wallets", where money is loaded into your Paypal account before going to the supplier, that the chain would be broken; this is akin to withdrawing cash from your card and paying the supplier with the cash. Square have no other function but to act as an end-to-end payment processor and facilitate the transfer of funds from my credit card to the supplier, as explained before [Point 3a, DRN0797157], this "four-or-more" party arrangement does not break the DCS link, as proven in the prior mentioned court case and FOS decision.

4a. Square themselves describe their function as the following: "Square’s hardware and services create an end-to-end payment processing system: We capture your customers’ payment information at the point of sale (no manual reconciling), work directly with credit card payment gateways to securely route those payments to the right place, and deposit the funds into your bank account in one to two business days." - [https://squareup.com/gb/guides/payment-gateway]. There is no scope here for the D/C/S chain to be broken.

5. You have found in at least 2 previous ombudsman decisions (attached) that when not funding an (presumably PayPal - as referenced "P") "E-Wallet" account, the chain is unbroken. In this case, "P" takes on a similar function to Square as an end-to-end payment processor, in that it merely facilitates the transfer of funds made available from a credit agreement, to the supplier.

- "Like the investigator, I don’t agree that the fact that O used the services of a payment terminal, or payment gateway, provided by P interferes with or affects the d/c/s chain between Miss B/Amex/O. P simply provided the technology to facilitate the transfer of the money to O, without itself entering into possession of the money." - DRN4631631

- "Like the investigator, I don’t agree that the fact that P provided payment aggregation services to Amex is sufficient to break the d/c/s relationship between Mrs W/Amex/S. The relevant point is that Mrs W didn’t use her account with P to pay S for the goods – the transaction doesn’t appear on her the statement of her account with P. So I conclude that Amex is equally liable with S under section 75 for S’s breach of contract in supplying faulty goods. It’s therefore fair and reasonable that Amex should compensate Mrs W by paying her £725, not £625 as the investigator suggested." - DRN5747043

It is clear that the fact that DEALERSHIP used the services of Square as a payment processor does not affect the D/C/S link in this "four-or-more" party arrangement.

With these points considered, I see no reason for CC company to deny my claim, especially not for the reasons they have stated. They have made no attempt to directly address the arguments I have made to them and I believe they are being unfair and unreasonable.

10/01/2020: I am assigned an FOS investigator.

05/03/2020: The investigator sends their initial view. It agrees with me, upholding my complaint and also cites that:

Square is a payment processor, as they note in the legal terms on their website:
"Square is a payment processor that allows you to accept Cards from customers for the
payment for goods and services. We are not a bank and do not accept deposits as defined
by the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Your
Square Account is not a payment account and may not be used by you to instruct payment
transactions..." (https://squareup.com/gb/en/legal/general/payment)
As such, Square processes payment transactions for companies who then don't have to set
up relationships with individual card companies themselves. I would not consider it
necessary for there to be a contractual relationship between DEALERSHIP and CC COMPANY to satisfy the DCS relationship.

22/06/2020: After waiting ages for a reply from the CC company they finally got back after delaying several times due to Covid. They came back rejecting the initial view from the investigator. Their argument contains a lot of irrelevant information but it seems to basically be arguing that they believe Square converts the money into "electronic money". Here is what I replied to the ombudsman with, my arguments in bold:

Taking into account what CC Company have said, I feel like they are making spurious arguments without any evidence.

I myself created an account with Square for my business and accepted a payment through it. The only time I could see a reference to the money I have received in my Square account was as an "Upcoming Transfer" before being deposited into my business bank account. I could not interact with this value in any way.

CC Company have said that "we are not aware of any agreement between Square and the supplier that the funds will be transferred directly to the supplier..."
-When registering for your Square account, you agree to the payment terms in section 9 which state: "We will settle proceeds to your verified bank account..." in fact they state on their FAQs: "Please note that your Square account will not be activated to accept payments until you have linked your bank account to Square, and the bank account has been verified."
[ https://squareup.com/gb/en/legal/general/payment - Section 9 ]

CC Company have said that "we are not aware of any agreement between Square and the supplier that the supplier will honour our card..."
-When registering with Square you agree to the Legal Terms that detail in Section 23: "You will honour all valid and current cards without discrimination when properly presented by a customer for payment".
[https://squareup.com/gb/en/legal/general/payment - Section 23]

CC Company have said that "Customers seem to know that they are paying through Squareup".
-This is irrelevant and unfounded but to me it just seems like any other credit card transaction when you are presented with a card reader.

CC Company have said that "We maintain our position that Squareup converts the funds provided by us into electronic money to finance the separate transaction with the supplier."
-This seems to be the crux of the issue. As you have noted in your view, a Square account is not a payment account. Further to that, at no time do the funds fit the FCA description of electronic money. The FCA state that it is NOT considered electronic money where:

"(c) monetary value stored on specific payment instruments that can only be used in a limited way and meet one of the following conditions:
(i) allow the holder to acquire goods or services only in the issuer’s premises;
(ii) are issued by a professional issuer and allow the holder to acquire goods or services only within a limited network of service providers which have a direct commercial agreement with the issuer;
(iii) may be used only to acquire a very limited range of goods or services; or
(iv) are valid only in a single EEA State, are provided at the request of an undertaking or a public sector entity, and are regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers which have a commercial agreement with the issuer."
[https://www.handbook.fca.org.uk/handbook/glossary/G346.html]

The only reference to money in a suppliers' Square account is before it is transferred to the business bank account of the supplier, where it shows as an "Upcoming Transfer".
Given that the usage of your Square account is extremely limited because one cannot do or acquire anything with the figure shown; points ii and iii confirm that it cannot be considered as electronic money. The funds made available by the credit agreement at the time of purchase clearly financed the transaction for the purchase of the vehicle from the supplier

27/07/2020: The ombudsman lets me know that they have received information directly from Square about their role in the transaction and terms and conditions. They also agree that electronic money has not been purchased and that the credit agreement has financed the transaction between myself and the dealership.

17/08/2020: The ombudsman lets me know that the CC company have now at last agreed to consider the complaint under Section 75.

10/12/2020: After back and forth with the CC company gathering more data regarding my claim to ensure that the rest of S75 applies, they send me a letter with a full and final settlement offer of the cost of the vehicle + the BMW inspection.

Now it is crucial to note here: The CC Company never accepted that Square did not break the DCS chain. They instead stated that they were looking into my claim under Section 75 "Regardless of whether or not the DCS chain was broken". This is an important distinction as I guess they wanted to avoid making a precedent of this. However should you find yourself in a situation like I have I hope that my experience, research and arguments can help you. I am thankful to the Ombudsman for not allowing the CC company to ignore me.
 
Last edited:
Soldato
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Why did you not take the dealer to court?

Seems like easier option to first try.
 
Associate
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Why did you not take the dealer to court?

Seems like easier option to first try.
The problem with this is that you have to pay to take them to court and I believe that if you take legal action, the ombudsman can't help. Secondly, sure the court will rule in my favour but wouldn't he just take the CCJ and / or wind up his company, leaving me with nothing? In fact his company is currently being liquidated anyway so I don't think I would have gotten anything from pursuing this avenue.
 
Soldato
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The problem with this is that you have to pay to take them to court and I believe that if you take legal action, the ombudsman can't help. Secondly, sure the court will rule in my favour but wouldn't he just take the CCJ and / or wind up his company, leaving me with nothing? In fact his company has a proposal to be struck off the register so I don't think I would have gotten anything from pursuing this avenue.

Well winding up a company over a car worth £10k at most? Seems unlikely.

However, you'd still have Section 75 protection (?) which would be even stronger with a judgement.
 
Associate
OP
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Well winding up a company over a car worth £10k at most? Seems unlikely.
Perhaps, but we are not talking about a large dealership here. It was more like a one or two man band.

Also the Section 75 issue was not whether the dealership breached contract, it was whether the debtor-creditor-supplier chain was intact or not. It would have been a quicker process if the CC company had not tried to argue that the DCS chain was broken by the third party payment processor.
 
Associate
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Well done, good outcome although no doubt it caused you a fair amount of stress and being down a car and cash.

What happened to the car - did you reject it and leave it at the 'dealer'? Good to know you got the cash back - would be good to hear what happened with the vehicle between the purchase and getting your refund.

Also interesting as I'll bet 99.9% of the public just think it's a card reader that looks a bit different than a more traditional one. Do we need to start asking retailers who does their payment processing, I mean how is Square really any different to worldpay or barclays or paypal?

I seem to recall that another leading retailer of computer parts use Paypal as their payment processor although it's transparent to the end user as you don't need to go through paypal to make a purchase on their website. Would that lead to issues if you had problems with a high end purchase.

Sounds like the regs could do with a bit of an update to handle these newer financial services processes.
 
Associate
OP
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Well done, good outcome although no doubt it caused you a fair amount of stress and being down a car and cash.

What happened to the car - did you reject it and leave it at the 'dealer'? Good to know you got the cash back - would be good to hear what happened with the vehicle between the purchase and getting your refund.
Thanks yeah it was very stressful but I always knew I was in the right.
 
Associate
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Thanks yeah it was very stressful but I always knew I was in the right. Still have the car, engine disassembled. The CC company know and I guess we'll have to work out what to do with it.

I assume it's got a decent value if broken up for spares, can't see the CC company being interested in that, no doubt it'll get picked up never to be seen again.
 
Caporegime
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In summary, in April 2019 I bought a car (2009 BMW 335i). I paid £102.50 on my credit card through the dealers card machine that was provided by a third party payment processor, Square.

Less than a week later the engine had a catastrophic failure. I had BMW inspect the damage at a cost of £1200 and a estimate to fix of £22,000.

Erm...
 
Associate
OP
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663

Ah yes, made it a bit clearer. And as for the sky high investigation and repair cost.

They had to disassemble the engine before the warranty company would step in. 10 hours of labour or so apparently... It was found that the injectors leaked fuel into the sump which lead to a spun bearing and metal swarf destroying the engine and both turbos. Naturally the replacement cost from BMW is insane. The car cost 9k.
 
Don
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Good to see, I have a claim in at the moment, only for a few hundred but an aggregator called Stripe involved

It's crap that you pay not knowing these 3rd parties are involved and tbh there is no reason for them to be used if you are all above board
 
Caporegime
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Nice one OP, glad you got it sorted and thanks for taking the time to post the outcome, this is useful for others and on this forum (and perhaps on MSE) this stuff will rank highly in google searches.

I guess knock-on effect of this, even if it doesn't hit dealer directly in this case, is that it makes it harder for these cowboy types to process credit card transactions. I know back in the day a friend of mine needed his business partner to be personally liable (had assets - own house) before they got a card machine for their business.

Well winding up a company over a car worth £10k at most? Seems unlikely.

However, you'd still have Section 75 protection (?) which would be even stronger with a judgement.

winding up "a" car perhaps.... but given a car and given their attitude then the chance of multiple cars and multiple CCJs increases... erog chance you've got one of those dodgy dealers who have wound up companies a few times is a bit higher.

It sucks as essentially the dealer gets away and all of us consumers using credit in general pay (well disproportionately people who use credit and don't pay in full each month pay essentially but meh...).
 
Don
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these companies will "fold" over a few grand and be back day after with a marginally different name and the wheels of the cars not even moved half a rotation
 
Associate
OP
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2 Jan 2012
Posts
663
Good to see, I have a claim in at the moment, only for a few hundred but an aggregator called Stripe involved

It's crap that you pay not knowing these 3rd parties are involved and tbh there is no reason for them to be used if you are all above board
I'd be interested to know if they try to claim the debtor creditor supply chain has been broken in your case. I believe Stripe acts in a similar capacity to Square. Facilitating the payment between yourself and the merchant by using Stripes main merchant account.
 
Associate
OP
Joined
2 Jan 2012
Posts
663
Nice one OP, glad you got it sorted and thanks for taking the time to post the outcome, this is useful for others and on this forum (and perhaps on MSE) this stuff will rank highly in google searches.

I guess knock-on effect of this, even if it doesn't hit dealer directly in this case, is that it makes it harder for these cowboy types to process credit card transactions. I know back in the day a friend of mine needed his business partner to be personally liable (had assets - own house) before they got a card machine for their business.



winding up "a" car perhaps.... but given a car and given their attitude then the chance of multiple cars and multiple CCJs increases... erog chance you've got one of those dodgy dealers who have wound up companies a few times is a bit higher.

It sucks as essentially the dealer gets away and all of us consumers using credit in general pay (well disproportionately people who use credit and don't pay in full each month pay essentially but meh...).
Thanks yeah, there was very little information outthere on this exact subject when I started so I just hope it helps someone else. I think CC companies are beginning to understand that S75 does apply in these circumstances so hopefully it will be easier in future.
 
Don
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41,268
Location
Notts
I'd be interested to know if they try to claim the debtor creditor supply chain has been broken in your case. I believe Stripe acts in a similar capacity to Square. Facilitating the payment between yourself and the merchant by using Stripes main merchant account.

I will get back to you :)
 
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