OFT Test Case Says Connected Lender Liability Extends To Foreign Transactions

Introduction

The House of Lords has, today, delivered its judgement in the case of The Office of Fair Trading v Lloyds TSB plc, Tesco Personal Finance Limited and American Express Services Europe Limited [2007] UKHL 48, unanimously upholding the Court of Appeal's judgement that connected lender liability, imposed by Section 75(1) of the Consumer Credit Act 1974 ("the Act"), applies to foreign transactions financed by credit cards issued under regulated consumer credit agreements, just as it applies to domestic transactions. This means that the joint liability of UK card issuers and suppliers for valid consumer claims against the supplier for misrepresentation or breach of contract does now extend to claims arising out of foreign credit card transactions (as before where the cash price is between £100 and £30,000). The landmark ruling has potentially significant consequences for UK credit card issuers.

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Introduction

The House of Lords has, today, delivered its judgement in the case of The Office of Fair Trading v Lloyds TSB plc, Tesco Personal Finance Limited and American Express Services Europe Limited [2007] UKHL 48, unanimously upholding the Court of Appeal's judgement that connected lender liability, imposed by Section 75(1) of the Consumer Credit Act 1974 ("the Act"), applies to foreign transactions financed by credit cards issued under regulated consumer credit agreements, just as it applies to domestic transactions. This means that the joint liability of UK card issuers and suppliers for valid consumer claims against the supplier for misrepresentation or breach of contract does now extend to claims arising out of foreign credit card transactions (as before where the cash price is between £100 and £30,000). The landmark ruling has potentially significant consequences for UK credit card issuers.

Background

The parties originally agreed to seek a declaration from the High Court as to the proper construction of Section 75. Up until then card issuers, while not accepting that Section 75 applied to foreign credit card transactions, had honoured, on a goodwill basis, valid foreign transaction claims up to £30,000 (the maximum purchase price permitted under the Act to make such a claim). At the same time, the card issuers and the OFT had, for some time, been in discussions as to the Section's remit, culminating in the OFT threatening to serve "stop notices" if card issuers did not honour foreign credit card transactions.

The OFT began the action, seeking a declaration that foreign transactions financed by credit cards issues under consumer credit agreements regulated by the Act were subject to the connected lender liability imposed by Section 75(1) (it also sought a declaration that card issuers operating a four-party system (those where the card issuer and the merchant acquirer are different entities), as well...