Credit card companies could face compensation claims running into millions of pounds after losing a landmark case at the Court of Appeal. The court overturned a previous High Court ruling that lenders were not liable for losses suffered by customers when using their cards while abroad.
The dispute centres on section 75 of the Consumer Credit Act, which requires credit card companies to compensate borrowers who suffer losses after buying goods or services on their card if they are unable to claim redress from the seller. The rule applies to anything bought between the value of £100 and £30,000.
While all lenders routinely pay out on claims relating to transactions in the UK, several credit companies have insisted that the law does not apply to overseas card transactions.
Three lenders, Lloyds TSB, American Express and Tesco Personal Finance, had asked the court to rule that Section 75 did not cover customers while they are outside of the UK.
Hugh Evans, a financial litigation partner at solicitors DLA Piper, said: "This decision places an intolerable burden on card issuers, effectively positioning them as insurers for millions of foreign supplies in situations where they would not know the supplier, would have no direct knowledge of the facts and would not be in a position to assess the merits of any claims"
In theory, for example, someone using their credit card to pay for a hire car could leave their lender open to huge legal bills if they were subsequently involved in an accident.
Before yesterday's ruling, lenders such as HSBC, HBOS, MBNA and Sainsbury's Bank had all agreed to meet claims on overseas transactions as a gesture of goodwill.
However, lenders including NatWest and Royal Bank of Scotland had only agreed to look at cases individually. Barclaycard, the UK's biggest credit card lender, had said it would meet claims but only up to the amount spent on the card.
A spokesman for Lloyds TSB said it was "disappointed" by the decision. "The ruling means that a credit card customer can, for example, make a purchase abroad for £30,000, put just £1 of the purchase price on their credit card, and then claim against the credit card lender for millions of pounds in consequential losses."
However, consumer groups welcomed the decision. Mike Naylor, principal researcher at Which?, said: "This landmark decision confirms what Which? has always believed - that credit card holders should have the same protection when they use their card overseas as they do in the UK. It is great news for consumers that they are now officially covered wherever the card is used."
Sandra Quinn, of Apacs, which represents credit card providers, said no lender published figures for the sums they pay out on Section 75 claims each year.
"We do not believe standard claims would be a significant problem for lenders, but it is the principle of being liable for contingent claims that concerns the banks," she said.
The three lenders that brought yesterday's case said they were now considering whether to apply to the House of Lords for leave to appeal.Reuse content