With A Card, You're Covered For Disaster

With A Card, You're Covered For Disaster

Sydney Morning Herald

Tuesday August 22, 1995

VITA PALESTRANT

THE recent collapse of Osborne Computers serves to remind consumers that when it comes to big-ticket items it is sensible to pay by credit card.

As a payment mechanism, cards offer significant advantages over cash and cheques that can mean the difference between watching your money going down the gurgler with a bankrupt company or holding on to your cash.

The three major credit card schemes, MasterCard, Visa and Bankcard, provide valuable protection against the nonreceipt of the goods and services you pay for. Unfortunately, consumers are often unaware of this until it is too late.

Under charge-back rules a cardholder can request a refund from his/her bank if they have authorised a debit to a company but failed to receive the goods or services.

Each scheme has a different time limit during which a refund can be claimed, ranging from 90 to 120 days from the date of transaction.

When Compass Airlines crashed a few years ago some cardholders lost out on refunds because they had purchased tickets six months in advance to take advantage of "special" deals. The majority of customers who paid by cheque or cash never saw their money again. It was reported that there were 125,000 unused tickets worth $30 million. Only about 10 per cent of tickets were purchased by cardholders, most of whom were able to recover their money from their banks.

The banks, in turn, recouped the funds from ANZ, the airline's bank (referred to as the acquirer), which had to wear the multi-million-dollar loss.

At the time of the Osborne collapse 530 customers had pre-paid some $1.7 million in cash or cheques for computers that were never delivered, while hundreds of others had pre-paid around $1.5 million by credit card.

The Department of Consumer Affairs, which monitored the fallout, reports most of those who paid by credit card have had their money refunded through charge-back.

The outlook is different for Osborne customers who paid by cash or cheque. The company's new owners have given them the option to accept 60 per cent of the value of the system they purchased, or wait for delivery.

Osborne Gateway 2000 says it will try its best to deliver the PCs before Christmas but in terms of the Deed of Company Arrangement it has as long as 24 months to do so.

With the average PC priced at $3,000, losing $1,200 is infintely better than losing $3,000, and getting a computer eventually is an improvement on not getting one at all.

Since the collapse, the Minister of Consumer Affairs, Mrs Faye Lo Po, has warned consumers to think twice before paying for goods and services in advance.

"There have been several instances in the past few years where businesses such as discount furniture retailers and fitness gyms have collapsed," she said. "If you are being asked to pay a large amount in advance it may be an indication that the business is experiencing a cash flow problem and is using customers' money to keep it afloat."

Once the business failed, customers ranked as unsecured creditors and stood little chance of ever seeing their money again, she said.

National Australia Bank's general manager for card and business finance, Mr Lawrie Brooke, says consumers can avoid such risks by using their credit cards. "There are obvious advantages with charge-back. If you bought an Osborne computer by credit card you stood a very good chance of recovering the $3,000 - for $24 a year that's not bad insurance."

NAB, as the acquirer bank, refuses to confirm or deny it stands to lose around $1.5 million over the Osborne problems.

Although the benefit of charge-back was heavily promoted when credit cards were first introduced nearly 30 years ago, in order to persuade consumers that it is more secure than cash or cheques, the benefit is rarely, if ever, promoted now.

He explains that the actual right to charge-back is vested in the issuing bank, not the cardholder. "The credit card issuer uses their rights under the scheme to assist the customer to get a refund from the bank acquirer."

Even if a consumer is aware of charge-back, it's highly unlikely they will know what time-frame they have to make a claim on their card.

Mr Don Dawson, general manager of Bankcard Association of Australia, says the association has tried to achieve a common regulation across the three schemes. "We were looking for a domestic regulation for Australia but it did not eventuate," he says.

"The problem is the other two schemes have international rules and they baulked at the idea of having separate regulations for Australia."

While Bankcard has a limit of 90 days, MasterCard allows for 120 days to claim.

Visa's Mr Jim Culbertson, general manager, Australia, says the company cut its claim period from 180 to 90 days late last year to accommodate Australian banks, which don't like liabilities that stretch as far as 180 days.

"Three months is a long time to wait for goods to be delivered. Our research shows that older claims represent about one tenth of 1 per cent. You have to draw the line somewhere."

He says charge-back covers a whole range of considerations. "It stretches from non-receipt of goods and services to invalid signatures and situations where the goods and services are not as ordered," Mr Culbertson says.

"With card products generally, the cardholder, working through the issuing bank, has a huge amount of recourse to resolve disputes. The protection is far greater than for cash or cheques or any other form of payment."

Most bankers agree. Mr Charles Carbonaro, ANZ's chief general manager for Australian operations and payments, says: "When you pay by cash or cheque, it's goodbye, you've done your dough if a merchant goes broke. With credit cards, depending on the rules and time frame, you can get the funds back - it's a phenomenal benefit."

Charge-back is particularly relevant to the consumer when it comes to mail-order and phone-order business, says Mr Kevin Gray, the acting chief manager, card services, Commonwealth Bank.

"The consumer is better off using a card in this purchasing environment; if they have a problem they are protected."

He says banks are careful whom they give credit card facilities to - if the merchant fails, the acquirer is liable for the loss.

While charge cards such as American Express and Diners Club reimbursed customers when Compass failed and wore the loss, it's less clear whether they will do the same with Osborne.

Ms Di Collins, spokeswoman for American Express, says: "It's a matter of policy to reimburse people on the travel side of things. We do the others case by case."

Ms Kerry Miles, the credit executive for Diners Club, says she can't comment on whether Osborne customers will be entitled to a refund. "We have had one major liquidation before; we are looking at formalising a policy."