Under Section 75 of the Consumer Credit Act 1974, the credit card company is jointly liable for any breach or misrepresentation by the retailer or service provider.

Under this act, consumers can claim misrepresentation or services nor supplied, and the credit card company is liable to refund 100% of the cost of the service (providing it is over £100) even if the consumer has only paid an initial deposit. So, an example would be, if the solicitor agreed a fixed fee of £1500.00 and the client has paid £200.00 on account, the client could raise a dispute and recover the full £1500.00 and £200.00 deposit (£1700.00).

The flaw in the system is that the credit card companies often act upon the sole word of the consumer. Limited analysis is done regarding the issues faced by the consumer and the credit card companies act immediately to ensure that the consumer is safeguarded.

This act means great protection for the consumer, however what could the ramifications be for a solicitor who has card payments set up to credit their client account.

Often, although credit card companies themselves are liable under Section 75 to cover the cost to the consumer, they attempt to recover the funds from the supplier directly. This is achieved by finding the original payment and reversing it back out again.

Credit card companies regularly fail to make significant contact with the supplier before acting. The first the solicitor knows about the issue is when they notice the funds being withdrawn from their client account. This action can be particularly hazardous and damaging.

The problem is that it is a client account that is most regularly linked to taking credit card transactions. This means that anything received via credit card into client account could be reversed under Section 75.

Monies paid into client account are there for a specific purpose as dictated by the SRA Accounts Rules. This usually means that the funds are withdrawn very shortly after receipt for the purpose that they are intended. Funds are only held for longer periods upon specific instructions from the client and for a select few case-types.

Client money therefore could be at risk to a degree under Section 75. For example, a client pays £2000.00 for solicitors’ costs via credit card. The solicitor raises their invoice and moves the funds over into office account to cover it. This leaves the client ledger showing a balance of zero. The client then has the right, under Section 75 of the Consumer Credit Act to raise a dispute, stating that services were not provided or give another reason why they should be refunded. The credit card company refunds the client £2000.00 and then makes its own attempts to recover the same from the supplier, in this case the firm and its client account.

If the credit card company does not make significant contact with the firm, then the solicitor will be unaware of the pending debit until it is too late. The £2000.00 from the example will overdraw the ledger for that client, effectively taking other clients’ funds to satisfy the dispute raised under Section 75.

This is a clear breach of the SRA Accounts Rules. In this example we looked at money for costs. It could cause serious problems for the solicitor if they had to pay back a large costs sum into client account unexpectedly, especially if the firm in question is suffering a bit financially. A further question arises regarding disbursements and third-party payments. If services are disputed and disbursements are invoiced, it could cause more difficulty, especially if they were for large amounts such as experts and barristers. It is the solicitor who is liable to return the funds to client account promptly.

This is something that we at The Law Factory have recently come across for the first time.

I  therefore believe it is important to take Section 75 of the Consumer Credit Act into consideration, especially when agreeing to provide services to new clients. Although relationships generally tend to be good between solicitor and client, it is important to try and assess where possible, as early as possible any difficulties or a potential break down. It is also important to keep all correspondence on file and make it known if there are issues. Hopefully this will help to avoid any chargebacks under Section 75.

Alex Simons
The Law Factory LLP