Section 75 of the Consumer Credit Act 1974 makes the acquirer (credit card company) jointly and severally liable for any breach of contract by the retailer or trader (“merchant”)
Section 75 also applies to foreign transactions as well as goods bought online, by telephone or mail order for delivery to the UK from overseas.
Section 75 applies to all retail activity and is an issue where delivery of the service and or product is in the future. PTT Trusts in general will be used to hold consumer funds until delivery of the service and or product has been completed. There may be exceptions set out in the Trust arrangements where funds are paid prior to performance but those funds are sent to a protected destination such as another Trust, under Insurance protection, Etc.
In the unfortunate situation where a business (merchant) fails and there are insufficient funds, their acquirer generally ends up having to reimburse consumers for bookings made using credit and debit cards.
Acquirers providing services to the Travel sector are not protected by ATOL, ABTA or other similar consumer protection mechanisms.
Apart from Section 75, the acquirers have to follow stringent guidelines and meet solvency tests amongst other complex requirements as part of the scheme rules they have to adopt when licenced by bodies such as VISA and Mastercard.
Finally, it is true to say that the acquirers are in reality lending money to their merchants and find their risk unsecured. The events of 2020 have brought their risk to the fore. But even before Covid 19, acquirers had begun to ask for security and that can take the form of deferred payments, rolling reserves, cash bonds, insurance bonds, etc.
In travel, unless there is a well-managed Trust account or a business is well funded with a strong balance sheet, most merchants will utilise some or a significant element of consumers cash to both fund their losses in the low season and to pay deposits for accommodation and/or flights. The cycle for most Summer operators and they are in the majority, involves many loss-making months with strong summer months to achieve profit and positive working capital.
There is one exception currently in that the CAA will not permit such Trusts to be set up where there is an ATOL arrangement in place.
PTT in conjunction with a number of its acquirer partners, has developed acquirer protection Trust models where funds are held in Trust under a set of rules agreed between the merchant and the acquirer. The benefit of such arrangements is that (1) a merchant is able to trade by securing the services of a protected acquirer and (2) the acquirer provides competitively priced acquiring facilities in the knowledge that there is adequate risk mitigation in place.
In the long term such structures only grow as both parties learn to adapt their finances within the rules of such a disciplined arrangement.