In Office of Fair Trading v Lloyds TSB Bank plc and others [2007] UKHL 48, the House of Lords held that UK credit card issuers are jointly liable with foreign suppliers in breaches of contract and misrepresentation under Section 75 (1) of the Consumer Credit Act 1974. This liability is in relation to UK consumers who enter into transactions with foreign suppliers.

It is noteworthy that the House of Lords held that the joint liability provision applies to all foreign transactions, without any territorial restriction,s as long as the debtor is a UK debtor using a credit card issued by a UK issuer. For this reason, section 75 (1) applies even if the debtor travels abroad, the goods or services are supplied abroad and the contract between the debtor and the supplier is governed by foreign law. This means, in effect, that UK credit card issuers are guaranteeing the performance of foreign merchants in the relevant international network, even though they may have little control over them or their actions.

Furthermore, it should be noted that this joint liability is unlimited—damages may exceed the amount of the purchase price and may, for example, cover damages for personal injury. On the other hand, this joint liability is particularly important for e-commerce transactions as the consumer may find it difficult to obtain redress against foreign suppliers. The joint liability provisions will enable the consumer to obtain redress from the domestic credit card issuer. The provision is therefore a powerful tool for consumer protection in e-commerce and this interpretation by the House of Lords is likely to encourage trust in e-commerce.

The House of Lords held that the same policy provisions as those underlying the Crowther Report leading to the adoption of the Consumer Credit Act 1974 still apply. The issuer is better placed than the consumer to seek (restitutionary) redress against a foreign supplier.

The credit card issuers in this test case had argued that, in the case of foreign suppliers, there were no pre-existing “arrangements” between the creditor and the supplier as required under section 12 (b) of the Consumer Credit Act 1974 for debtor-creditor-supplier agreements, since modern international credit card transactions operate between four parties (issuer, merchant acquirer, merchant and debtor) usually without a direct contractual relationship between the issuer and the merchant. This is relevant for the two major international networks of Visa and Mastercard. The credit card issuers also argued that to hold them jointly liable would amount to an extra-territorial application of the Consumer Credit Act 1974. These arguments were rejected by the House of Lords. Lord Mance expressly stated: “to impose on United Kingdom card issuers a liability to United Kingdom card holders is not axiomatically to legislate extraterritorially.” Lord Hoffmann also stated that such a link is not obvious.

This ruling is detrimental for UK credit card issuers, who may now pass the additional costs resulting from this ruling on to  consumers. For consumers this probably means that the use of credit cards for foreign transactions will become more expensive, but also safer.