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uk credit card issuers are guarantors of liabilities of foreign suppliers October 31, 2007

Posted by Bradley in : Uncategorized , trackback

The House of Lords today interpreted the Consumer Credit Act 1974 in OFT v Lloyds TSB to the effect that issuers of credit cards to customers in the UK are liable under s 75(1) in respect of misrepresentations and breaches of contract by suppliers in relation to transactions financed by a credit agreement which take place and are performed outside the UK and are subject to foreign law. Lord Mance’s judgment, with which the other Law Lords concurred, points out that arrangements for credit card usage have changed since 1974 so that the decision means that credit card issuers have potential liability in respect of the actions of suppliers who just happen to be part of a credit card network. The Law Lords’ decision is consciously protective of consumers on the basis that the intention of the statute was to protect consumers. For example, Lord Mance states:

In relation to overseas transactions, there would be likely to be an even greater discrepancy between the card holder’s ability to pursue suppliers on the one hand and the ease with which card issuers could obtain redress through the contractual and commercial ties which Crowther contemplated would link them and suppliers. Card issuers’ ability to bear irrecoverable losses and so “spread the burden” exists in relation to both overseas and domestic transactions.

In relation to the card issuers’ difficulties he says:

That, in today’s market, arrangements between card issuers and overseas suppliers under schemes such as VISA and MasterCard are indirect (rather than pursuant to a direct contract as is still the case with American Express and Diners Club) is a consequence of the way in which the VISA and MasterCard networks have developed and operate. Likewise, the fact that the rules of these networks give card issuers no direct choice as to the suppliers in relation to whom their cards will be used. The choice of suppliers is, in effect, delegated to the merchant acquirers in each country in which these networks operate, and provision is made, as one would expect, to ensure and monitor the reliability of such suppliers in the interests of all network members. That network rules may not provide all the protections that they might, eg by way of indemnity and/or jurisdiction agreements, is neither here nor there. They could in theory do so, and it is apparent that there are some differences in this respect between different networks. The Crowther Report and 1974 Act proceed on the basis of a relatively simple model which contemplated that card issuers would have direct control of such matters. A more sophisticated worldwide network, like VISA or MasterCard, offers both card issuers and card holders considerable countervailing benefits. Card issuers make a choice, commercially inevitable though it may have become, to join one of these networks, for better or worse.


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