Credit card issuers liable for consumer claims
Consumers will now find themselves in a better position if they happen to buy goods or services abroad that are undelivered or damaged. On the other hand however, credit card providers will face more claims which may or may not be recoverable from the supplier.
The House of Lords recently dismissed an appeal by Tesco Personal Finance and Lloyds TSB, who had challenged the application of the Consumer Credit Act 1974 (“1974 Act”) in relation to joint liability. It confirms that credit providers are jointly liable with suppliers if a consumer has a valid claim against the supplier for misrepresentation or breach of contract under the 1974 Act. The ruling, given on 31st October 2007, confirms this applies to overseas purchases on credit where the price is between £100 and £30,000 and is financed by an agreement subject to regulation by the 1974 Act.
Any loss incurred by a credit company is, in theory, recoverable from the supplier. However the usual risks apply - if the supplier has gone into liquidation, for example, it is very unlikely the credit company would recover its costs. For this reason, companies may wish to consider indemnity insurance to cover such a risk.
The issue of the application of the 1974 Act to overseas as well as domestic transactions has always been ambiguous and the House of Lords judgment has finally resolved this issue. However, the 1974 Act is still far from clear. The 1974 Act aims to provide consumers with a high level of protection and imposes numerous and often quite complex requirements on credit businesses. The legislation has created somewhat of a minefield through which credit providers must try to determine which part of the legislation applies to their business, to what extent the agreement between the credit provider and the consumer should be regulated and whether any advertisements made by the company or on behalf of the company are CCA compliant.
This is only the tip of the iceberg. Depending on the nature of its business and the administrative procedures involved, the credit provider will have to adhere to regulations covering its agreement ranging from the practical (the number of copies to be given to the consumer when signing a CCA regulated agreement) to the formulaic (the total charge for credit applicable to the type of agreement) to the obscure (the correct size of font and use of capital letters throughout the agreement).
In April 2007, the Consumer Credit Act 2006 (“2006 Act”) came into force and amends parts of the 1974 Act to provide consumers with further protection. It also gives consumers the option to refer their complaint to the Financial Ombudsman Service if the matter cannot be resolved to the consumer’s satisfaction by the credit provider concerned. All businesses that already hold a consumer credit licence must have in place complaints-handling procedures which are compliant with the 2006 Act or their eligibility to hold such a licence may be affected.
The Office of Fair Trading are yet to publish their final guidance on the 2006 Act. This is expected to be available by the end of 2007 and is eagerly awaited by consumers and credit providers alike.
All providers of credit should be aware of the implications of this landmark ruling by the House of Lords and should ensure that all their CCA agreements meet the 1974 Act and 2006 Act requirements.
FOR FURTHER INFORMATION PLEASE CONTACT: SCOTT KERR
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