Credit spenders come a cropper

Different interpretations of the law allow lenders to give shoppers a raw deal, writes Paul Gosling

Buying a computer, hi-fi or other big- ticket item this Christmas? Putting the cost on credit cards or other credit facilities, rather than paying by cash or cheque, has attractions beyond the obvious one of spreading the cost.

If you buy something costing pounds 100 or more on credit, legally you have an extra safety net if the goods turn out to be faulty. The credit provider is just as liable as the retailer for putting any problems right. If a retailer ceases trading or cannot afford to repair or replace faulty goods then the finance house must make good the loss. The legal backing for this is in the 1974 Consumer Credit Act.

However, in practice there can be problems in asserting what can seem quite generous rights. In one case concerning customers of Colorvision - the bankrupt retailer - HFC Bank, a finance house, has been accused of welching on its responsibilities to some people who took out loans from the bank to buy TV sets.

HFC says its liability only lasts for the duration of a loan, and that it has no liability once a debt is repaid. However, trading standards officers at Leicester city council have been challenging that cut-off on behalf of those who lost out.

John Fox, principal trading standards officer, argues that under the 1974 Act the credit company's liability lasts for up to six years, the statutory time limit for civil claims, and says the council's view is backed by the Office of Fair Trading (OFT).

HFC financed linked-credit agreements, arranged by the Colorvision retailer which went bankrupt last year. Fifteen stores across Britain closed. Many customers had warranties on new TVs and videos, and some also had agreements with the store chain that they could eventually purchase replacement sets at preferential terms.

Some customers who had bought using HFC loans have had difficulties exercising these claims. The bank did intervene to ensure that sets covered by loans that were undergoing repair were returned to customers in good working order. Similarly, those that have developed faults during the term of a loan have been repaired at HFC's expense. But customers who have paid off their loan and wrote to HFC expecting them to put good any faults have been told that HFC had no continuing liability, even though the warranties lasted up to five years.

Patrick Long, spokesman for HFC, says: "Where finance is outstanding we will honour our responsibilities, honouring the terms and conditions of warranties; ensuring the provision of goods where a customer had not yet received goods from Colorvision, purchased prior to Colorvision going into receivership; and locating or replacing customer's goods that were in for repair while Colorvision went into receivership. Where the finance is no longer outstanding, the bank does not consider that it has any legal obligation. However in the interests of good service we will consider any request for assistance on its own merits."

Leicester's trading standards' officers say that in practice they have been negotiating individual settlements with HFC for the cases that have reached the council.

Last year the National Consumer Council published a report which said that lenders frequently flouted the law, only accepting responsibility for faulty goods in the last resort. Banks often tell customers to take retailers to court, and only after that fails will they accept liability. The NCC says that credit card issuers should only allow reputable retailers to accept their cards, and that if a trader goes bust the issuer is "as much to blame as the retailer".

Some credit providers differentiate between the rights of cardholders and people with personal loans. "As long as the credit card is current then it is still fine [ie you are still covered by the card company], irrespective of whether you have paid off the balance," says HFC. But if either party has terminated the agreement then the bank does not accept is has a liability.

But Mr Fox argues that credit card issuers continue to have equal liability, even if the agreement between bank and customer is terminated. "It doesn't matter if you have changed your credit card to another company."

The Credit Card Research Group says that the Consumer Credit Act needs updating. "There are lots of grey areas in the Act," says Liz Phillips, director of the group. "If something fails some time after purchase, perhaps that falls into a grey area, although it is not an argument usually used."

The OFT admits there are problems in interpreting the Act, as it has not been fully tested in the courts. Lenders apply the Act in varying ways. The OFT may undertake a further review of the Act in order to assist the Government in drawing up new legislation.