More power to your credit card!

This recent case confirms that card issuers must refund the cost of faulty goods.

Few things get British blood boiling more than poor customer service, rip-off prices and faulty goods.

Indeed, it sometimes seems as though the best bits of modern capitalism -- low prices, wider choice and decent consumer protection -- have passed us by.

Nevertheless, recent rulings by the Financial Ombudsman Service (FOS) show that we Brits can win when we know our rights.

The lousy laptop

For example, the latest FOS newsletter covers the trials and tribulations of 'Miss T', a student who bought a new laptop using her credit card.

Miss T's laptop developed a serious fault within six weeks of purchase, so she took it back to the retailer. Disgracefully, it refused her a refund or replacement and told her it was unable to help. This is a blatant breach of the Sale of Goods Act (SOGA).

The laptop supplier then told Miss T to contact the manufacturer to discuss repair or replacement. As Miss T needed a laptop for exams, she declined this offer. Instead, she bought a new laptop, again using her credit card.

Section 75 to the rescue

After her exams, Miss T contacted her card issuer to demand a refund for the faulty laptop. This lender wrongly claimed that it was 'not responsible for the quality of goods bought with a credit card’.

In fact, under Section 75 of the Consumer Credit Act, the lender 'stands in the shoes of the supplier' and is thus jointly liable with the supplier for any breach of contract.

Independent examinations of Miss T's laptop proved that it had a faulty motherboard, so she appealed to the Financial Ombudsman Service. The FOS duly ruled in her favour, as the laptop was not 'fit for purpose' and should not have developed a serious fault so soon after purchase.

As a result, Miss T's card issuer refunded the cost of the faulty laptop to her credit card, plus £100 in compensation.

Know your rights

This is a familiar tale of a consumer being cheated by unscrupulous companies. However, Miss T knew her rights, didn't get fobbed off, and eventually won her money back.

Even so, the Office of Fair Trading should force offending companies to undergo extensive retraining of their front-line and back-office staff. This would help to prevent future breaches of consumer protection.

If something similar happens to you, then it's important to know your rights. This great one-page guide from the Office of Fair Trading lists your rights under the Sale of Goods Act. My advice is to print it out and keep it in your handbag, purse or wallet for future reference.

Five more reasons to pay by credit card

I use my credit card to pay for almost every purchase, no matter how small. Indeed, I hardly ever use my debit card, except to withdraw cash. Here are five reasons why I prefer to pay by credit card every time:

1. Chargeback

Unfortunately, Section 75 only covers goods costing between £100 and £30,000. Nevertheless, lower-priced goods are covered by another little-known refund programme called 'chargeback'.

In January, my sister bought a pair of boots from a foreign website which proved to be of very poor quality. As they cost under £70, she cannot use Section 75 to reclaim her money. Instead, my sister has applied for a chargeback, which can be used when goods fail to arrive, arrive damaged, are not as described, or where the supplier has gone bust.

To use this service, ask your card provider to make a chargeback claim against the merchant's bank. Even if the merchant has gone bust, you should still get your money back from its bank.

2. Cashback

This year, I expect to spend at least £10,000 on my cashback credit card. As a reward for doing so, my card issuer gives me a cash rebate of 1% of my spending. Hence, I can expect at least £100 to be credited to my card account in 2012.

For new cardholders, the American Express Platinum Cashback Card pays a whopping 5% cashback for the first three months, up to £100 in total, and 1.25% thereafter. Other credit cards offer similar rewards, such as loyalty points, Air Miles, or donations to charities. Find out more in The best credit cards for free flights and Get £180 by using this card.  

3. Interest-free credit

Often, when making big purchases, I time my transactions to arrive immediately after my statement date. By doing do, I enjoy up to 59 days of interest-free credit before repaying my bill in full.

However, the best way to get extended interest-free credit is to spend using a 0% on new purchases credit card. The M&S Credit Card, for example, offers 15 months of spending with no interest to pay. Just make sure that you repay your bill in full before this interest-free break ends.

4. Fraud protection

Another valuable legal right provided by credit cards is protection against fraud. Under the Consumer Credit Act, your liability in the event of fraudulent spending on your card is limited to £50. What's more, if you can prove that you weren't to blame, most banks will waive this £50 liability.

In addition, some credit cards offer additional 'fraud protection guarantees' that reduce this liability to zero. Although this extra cover is useful, it's probably not worth shelling out for.

5. Other benefits

A few credit cards offer add-ons such as price protection, purchase protection, or travel accident insurance.

Price protection allows you to reclaim the difference if you buy an item and then find it cheaper later. Purchase protection is insurance for items bought with your card that are lost, damaged or stolen within, say, 90 days of the purchase date.

Travel accident insurance pays out lump sums if you are killed or seriously injured while travelling in transport paid for on your card. Do not confuse this with full-service travel insurance, as it offers neither medical nor baggage cover.

In summary, while it's worth making use of these extra benefits, don't be suckered into paying for them!

More: Find cracking credit cards | Watch out for this sneaky sales rip-off | Get £180 by using this card