Plastic protection for shoddy souvenirs

If you are in the habit of nipping over to Hong Kong for a camera or a music centre then the proposed changes to credit card law announced this week will have you dancing in the street.

If, on the other hand, you belong to the multitude that rarely spends more than pounds 100 a purchase on plastic then there is precious little to jump up and down about.

The Office of Fair Trading report, Connected Lender Liability, recommends changes to the 1974 Consumer Credit Act. In it, Sir Bryan Carsberg, director- general of fair trading, proposes to limit the liability of the credit card companies in respect of faulty goods to the amount of credit granted on the purchase.

As the law stands, credit card lenders are as liable for faulty goods bought using their cards as the shop that sold them. Moreover, their liability is unlimited. So if you use your credit card to buy (or put a deposit on) goods or services worth over pounds 100 then the lender will be liable for the full cost of the goods plus any connected losses.

For example, if you buy a pounds 101 television which subsequently develops an electrical fault and burns down your house then the credit card company is liable for the cost of the house and contents, including the television. If, however, it was a pounds 99.99 ghetto blaster that did the damage then the card company is off the hook.

But the one grey area has been the purchase of items abroad. The credit industry has strongly challenged the provisions of the 1974 Act, claiming that its responsibilities do not extend to goods purchased overseas. Sir Bryan disagreed and a deal has been struck with the credit card industry which changes all that.

In return for a cap on their liabilities, most card companies have agreed to meet claims on overseas transactions on an ex gratia basis for the amount of credit given until December1996. After that the position will be reviewed, if not superseded, by legislation. Even though there is no time scale for the necessary legislation, the promise on overseas transactions takes immediate effect.

The quid pro quo is the cap on the card companies' liability, both here and overseas. Instead of being liable for unlimited damages in relation to goods costing between pounds 100 and pounds 30,000, they will only be liable for the amount of credit granted on any transaction. Consumers who pay a deposit by card and the balance in cash will lose their right to claim the full amount from the card issuer.

The consumer's lot is further eroded because the OFT proposes that the monetary limits of pounds 100 and a reduced ceiling of pounds 25,000 should refer to the amount of credit granted rather than the purchase price of the item. So unless you actually borrow more than pounds 100, the card companies are in the clear.

Sir Bryan described the concessions from the industry as "a very significant improvement for consumers". In the short term it certainly is. Until the legislation is enacted, credit card users will still enjoy unlimited protection on goods costing more than pounds 100 and, if the goods are bought abroad, protection on the amount of credit granted.

But when the Government gets around to amending section 75 of the 1974 Consumer Credit Act, a good deal of the domestic protection will disappear.

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