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Court judgment on credit card consumer protection

186/04     12 November 2004

The High Court today ruled that the consumer protection given by Section 75 of the Consumer Credit Act 1974 does apply to domestic credit card transactions but that it does not generally apply to overseas transactions. The OFT is considering whether to appeal the overseas transactions point to the Court of Appeal.

Section 75 provides that for credit purchases with a cash price above £100 and not more than £30,000 the consumer is entitled to claim from the lender if things go wrong - e.g. if the supplier breaches the contract or if there was misrepresentation.

The application of Section 75 to four-party credit card transactions (see below) - by far the great majority of transactions nowadays - and overseas transactions has long been uncertain. The OFT sought to resolve the issue by way of a Court declaration. The OFT's views on Section 75 were opposed by Lloyds TSB, Tesco Personal Finance (part of the Royal Bank of Scotland Group) and American Express Services Europe Limited.

When a customer purchases goods or services using a credit card there typically are four parties involved:

• the cardholder
• the retailer
• the bank who issued the card – the 'card issuer'
• the bank who acts on behalf of the retailer – the 'merchant acquirer'.

When the card issuer and the merchant acquirer are different banks it is a four-party agreement, when they are the same it is a three-party agreement. The High Court has found that both are covered by Section 75.

Domestic transactions account for over 90 per cent of credit card spending by UK consumers, which in 2003 amounted to over £105 billion in total.

The High Court has ruled that purchases made overseas are not generally covered by Section 75.

Tips for consumers on purchases made in the UK

• thanks to the consumer protection of Section 75, money that seemed lost on a credit card purchase can be claimed back
• if you pay by credit card you can claim your money back from the card company if the seller fails to honour the contract, or the item is faulty or if the seller wrongly describes it or if the supplier goes out of business with your money before the item is delivered
• if you are buying an item costing over £100 and you are asked for a deposit, consider paying the deposit by credit card
• you have protection whether you buy in the UK from a shop, by mail-order, by telephone or internet - the protection is the same
• you are not covered by Section 75 if you use a debit or charge card.

NOTES

1. The major share of credit card expenditure in the EC is made by UK consumers.

2. The effect of Section 75 of the Consumer Credit Act 1974 is that when a lender provides credit to finance a purchase from a separate supplier pursuant to pre-existing or contemplated future arrangements with that supplier, the lender is equally liable with the supplier for any breach of contract or misrepresentation by the supplier if all of the following conditions are met:

• the cash price of the item is over £100 but not more than £30,000
• the credit agreement is regulated, ie generally where not more than £25,000 of credit is advanced to an individual (includes sole traders, partnerships and unincorporated bodies)
• the creditor is in the business of granting credit and the agreement is made in the course of that business
• the credit is advanced under the arrangements between the credit grantor and the supplier, so that a bank overdraft arranged by an individual to pay for an item is not covered.

3. A declaration is where a judge makes a ruling on a point of law which is the subject of disputed interpretation.

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