We’ve never been so spoiled for choice when it comes to the different ways we have to pay for things.
Despite predictions of its demise, cash is still widely used by the public (and will be for the foreseeable future).
A whopping 185 million checks were also issued in 2020, proving that the checkbook has yet to be banished to dusty drawers.
But while some payment methods give us greater consumer rights when things go wrong, others could overcharge you.
This becomes especially important if you’re trying to get a refund from a company due to a dispute.
Here is my guide on what to watch out for.
Online banking has become so universal that today we don’t hesitate to transfer money to friends and family using smart devices.
Bank transfers are easy to make and the introduction of ‘two-step verification’ means there are additional checks in place to ensure money is going to the correct account.
Most banks will warn you about common scams during this process. Read them and make sure you are happy before making a payment.
The faster payment system, introduced in 2014, means the money goes to the other person’s account more or less instantly.
While this is convenient, it poses a problem. Scammers know that it is difficult to recall bank transfers without raising a formal fraud case. This can take from a few minutes to several weeks.
Therefore, fraudsters often use the wire transfer method to trick people into transferring their savings.
As soon as the money reaches the practice account, the money is diverted in smaller pieces to other accounts where it eventually disappears. There is an exceptionally tight window to call the bank and get that money back.
Generally speaking, when you pay someone by bank transfer, the money usually cannot be recalled. This is because the bank has no way of knowing if there is a dispute between you and the other party.
For example, you might have purchased an item from a seller and then tried to recall the money after receiving the goods. In these circumstances, the bank will generally refuse to get involved.
However, if you made a mistake and transferred money to the wrong account, the bank should at least try to recover the money.
With that in mind, you should only use bank transfers to pay money to people you know.
Learn more about the most common financial scams and tricks to watch out for.
If you’ve spent more than £100 and less than £30,000 on your credit card and the goods or services don’t turn up or are “misrepresented”, you may be able to claim a refund from your credit card provider .
This is called making a claim under Section 75 of the Consumer Credit Act. We often mention Section 75 claims in our guides, as the Act is an extremely helpful piece of legislation.
If you have a dispute with a company that sold you goods or services that don’t work, don’t show up, or don’t match the advertisement, you should complain first. Otherwise, you file a claim with your credit card provider.
When you make a complaint, you must specify what is wrong, what you thought you were getting and why you are not satisfied. The card provider will then investigate and give you a response. You can submit your complaint to the Financial Ombudsman Service free of charge if you are not satisfied with a decision.
Useful as it is, the Consumer Credit Act is old legislation based on a very different era of spending. The way we live and shop today means there are a lot of loopholes in the law and how it works.
For example, there is an incredibly complicated clause in the law known as the “debtor-creditor-supplier” agreement.
This means in practice that your rights to claim money from the card provider only apply if you buy directly from the provider.
Sound simple? How about using an online travel marketplace to buy hotels and flights? Or if you use PayPal to make payment for goods?
In theory, these two transactions are not covered by law, although some card providers may agree to intervene. I’ll try if you’re unsure – but buy direct where possible.
Find out who should reimburse you if a purchase fails.
If you make a payment on your debit card and something goes wrong, your card provider may be able to “recharge” the money.
This is an industry system (not a law) where your debit card provider calls your money back. It also works with credit cards. The card issuer may attempt a chargeback before investigating a claim under Section 75, as this is easier.
However, chargebacks are not guaranteed in all cases. In very general terms, if your purchase went wrong, the chargeback may be able to reverse the transaction.
There are time limits for making a claim, usually 120 days from the date of purchase). But disputes over the quality of goods may be subjective and you may be told to deal with the retailer instead.
Chargebacks are especially useful if you read in the news that a company seems likely to go bankrupt.
If this happens after you have ordered goods or services, contact your card provider and ask them to recall your money.
Cases like this can usually be handled on the spot and then over the phone (time is running out). In many cases however, you will be asked to complete a short form explaining what is wrong.
PayPal and electronic payments
Millions of people use online “electronic payment” services like PayPal. These electronic payment services are essentially third parties who act as an intermediary between you and the retailer.
Electronic payment services are regulated and generally offer some degree of consumer protection – albeit through their own dispute resolution mechanisms.
I hear an equal number of complaints from buyers and sellers about these schemes and there are some rather random and arbitrary time limits for certain types of disputes.
But paying using an electronic payment company gives you more protection than you would get by making a bank transfer.
You can also contact the financial ombudsman free of charge if you are still unhappy with the way a company has handled your complaint. But on the downside, because these companies are “third parties”, so you can’t successfully make Section 75 claims.
Of course, fraudsters are always looking for flaws in the system.
A recent scam involved fraudsters posing as retailers asking consumers to send money using PayPal’s “friends and family” option in order to reduce fees.
However, this type of payment works the same way as a bank transfer. So when the money is gone, it’s gone – and it’s not covered by PayPal’s dispute resolution service, leaving you with no recourse.
Learn more about paying by credit card versus online services such as buy now, pay later.
Cash, checks and money transfer services
If you pay in cash or use an international transfer service like Western Union, the money is not “recoverable” in case something goes wrong.
So beware if you are asked to use these payment methods. The same goes for checks. The check clearing system has changed significantly over the years, but there are still ways to “outsmart” the system.
Be careful before paying a stranger by check for this reason – or accepting one.
Cash is still king for many people, especially as the cost of living crisis has prompted people to watch their spending more closely.
Needless to say, there are some issues with cash payment if disputes arise later. So keeping your purchase receipts is your best way to protect your consumer rights.