The House of Lords has supported the overturning of an earlier court decision that could have damaged confidence in e-commerce. The Lords ruled against Lloyds TSB, Tesco Personal Finance and American Express yesterday.
Consumers will still be able to claim refunds on goods from credit card companies even if their purchase was made abroad, the House of Lords has said.
Section 75 of the Consumer Credit Act allows people to claim refunds from their credit card issuer as well as the seller of the goods if they have been misrepresented or if there has been a breach of contract.
The current case began in 2004 when the Office of Fair Trading (OFT) asked the courts to rule once and for all on whether section 75 applied to goods bought overseas. The High Court said it did not, ruling in favour of Lloyds TSB and others, but the OFT appealed and won.
The House of Lords has backed the Court of Appeal's ruling. That could cost the credit card industry significant sums, but the OFT has welcomed the decision.
"The application of section 75 to overseas credit card purchases has long been uncertain, which is unsatisfactory for UK consumers," said John Fingleton, chief executive of the OFT. "We are pleased that the House of Lords has resolved the issue, and particularly happy that it has been resolved in a way that gives greater protection to consumers."
UK consumers spent £10 billion a year according to the payment cards industry body APACS. That spending will be subject to the Section 75 rules as long as the sum spent is between £100 and £30,000.
Lloyds TSB said in a statement: "This ruling gives the clarification of the law we were seeking regarding the application of Section 75 of the Consumer Credit Act 1974 to foreign credit card transactions. We are disappointed with the decision as we have long believed that Section 75 has no validity in relation to foreign credit card transactions. However, given that the House of Lords has confirmed the Court of Appeal ruling, we will continue our policy of paying valid claims for overseas transactions."
APACS also welcomed the certainty that the ruling gives its members. "From a customer’s point of view, this decision means no change as card companies had been meeting valid overseas claims anyway," said Sandra Quinn, APACS' director of corporate communications. "Clearly the card industry will need to consider the implications of today’s ruling for their individual businesses."
Had the ruling gone the other way it could have dented confidence in e-commerce, which relies more heavily than off-line business on cross-border consumer trading.
The five law lords were unanimous in their decision. Lord Hoffmann, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood, and Lord Mance ruled in the case.
"There is nothing in the language of section 75(1) to exclude foreign transactions," said Lord Hoffman's ruling.
"The answer to the question whether the right of recourse under section 75(1) does extend to foreign transactions is to be found in the words of the statute, not in any presumption either way as to its application extraterritorially," said Lord Hope. "The words 'in relation to a transaction financed by the agreement' … are unqualified."
"They are to be understood as extending to whatever was in contemplation when the agreement between the debtor and the creditor was entered into. In 1974 the use of credit cards issued by United Kingdom providers for foreign transactions was limited to Barclaycard," he said. "I do not think that it can be said that Parliament did not envisage the possibility of transactions being entered into abroad, linked to the relationship between the issuer of the card and the cardholder, of the kind that is now commonplace."