BANKING LITIGATION DEC 2007

In this eNewsletter:



Banking Contacts



Ruari MacNeill 

Direct Dial:
0131 625 7279

Email:
ruari.macneill
@andersonstrathern.co.uk



Claire Martin  

Direct Dial:
0131 625 7285

Email:
claire.martin
@andersonstrathern.co.uk





Andrew Foyle 

Direct Dial:
0131 625 7247

Email:
andrew.foyle
@andersonstrathern.co.uk


Where are we?

1 Rutland Court,
Edinburgh, EH3 8EY
t: 0131 270 7700
f: 0131 270 7788

24 Blythswood Square
Glasgow, G2 4BG
t: 0141 242 6060
f: 0141 221 4733

14 Court Street
Haddington, EH41 3JA
t: 01620 82 2127
f: 01620 82 5839

163 Lanark Road West
Currie, EH14 5NZ
t: 0131 449 2833
f: 0131 449 6725

Contact information and maps of all Anderson Strathern offices

 

CREDIT CARD TRANSACTIONS ABROAD AND SECTION 75 OF THE CONSUMER CREDIT ACT

On 31 October 2007 the House of Lords issued their judgment in the test case brought by the Office of Fair Trading against two credit card issuers (Lloyds TSB and Tesco Personal Finance).  The issue in question was the extent to which section 75 of the Consumer Credit Act 1974 applies to transactions carried out abroad.

Section 75 makes a card issuer jointly liable with the supplier of goods in respect of any breach of contract or misrepresentation by the supplier.  The issue is an extremely important one for card issuers. The overall effect of the judgment (as accepted by the House) is to make card issuers “potential guarantors of some 29 million foreign suppliers with whom they have no direct contractual relationship”.

Issues under consideration

Whilst the case had been ongoing since 2004, the issues before the House were relatively narrow, with the card issuers seeking to argue:-

  • that the Consumer Credit Act 1974 could not have application outside of the UK and thus any contract between a customer and a supplier which was (a) made wholly or mainly outside the UK; (b) governed by foreign law; and (c) for goods or services to be supplied from or delivered to a country outside of the UK, should not be covered by section 75; and
  • that the protection for card issuers under section 75 is that they are entitled to be indemnified by the suppliers, but that they would be unable to obtain that protection if the supplier was a foreigner not subject to the Consumer Credit Act.  Accordingly, it cannot have been Parliament’s intention that section 75 apply to foreign transactions.

 

Reasoning of the House of Lords

The House found unanimously against the card issuers.  While the Court accepted that the Consumer Credit Act cannot have application to foreign subjects based outside the UK, it was held that:

  • there is nothing in the Act which excludes foreign transactions;
  • there is nothing in the Act which links the protection to consumers offered by section 75 to the right of the card issuer to be indemnified by the supplier;
  • that the Act is primarily concerned with the relationship between the card issuer and their debtor, and therefore the primary consideration is that the credit agreement between debtor and card issuer be a UK credit agreement;
  • that in the majority of cases the card issuer is in a better position to seek redress against the supplier than the debtor is and therefore it is equitable that the protection afforded by section 75 extends to foreign transactions.

 

What does this mean?

The effect of the judgment is that the majority of transactions on a credit card which are effected abroad now have the protection of section 75 of the Consumer Credit Act 1974. 

As pointed out in the judgment itself, this applies only to transactions with a supply price of between £100 and £30,000.  It applies to credit cards and specific types of credit agreement only.  It does not apply to debit card or charge card transactons. The protection also applies where only part of the supply price has been paid using the credit.

For card issuers, the implications are major.  They should bear in mind however, that the protection is only available in the circumstances outlined in the Act.  Debtors will still need to prove their case in the same way that they would have to do so against the original supplier. 

Claims under Section 75 should still, therefore, be carefully examined by card issuers before any settlement is offered.

Further information

For further information please contact  Andrew Foyle 0131 625 7247,  Ruari MacNeill 0131 625 7279, or Claire Martin 0131 625 7285 in the Dispute Resolution Banking Team.

You have received this e-newsletter as you signed up to receive updates from www.andersonstrathern.co.uk
Click here to unsubscribe. Copyright 2004-2007 Anderson Strathern LLP. All rights reserved. Anderson Strathern LLP is a limited liability partnership registered in Scotland with Partnership No. SO301485. Registered office: 1 Rutland Court, Edinburgh EH3 8EY. 'Partner' denotes a member of, and all business is transacted for and on behalf of, Anderson Strathern LLP. A list of members' names is open to inspection at each of our offices.