Credit card companies have to guarantee foreign purchases

Consumers can breathe a sigh of relief as three of London's top judges ruled credit card guarantees apply for goods and services purchased abroad as well as in the UK.

Yesterday's decision in the Court of Appeal in a case brought by the Office of Fair Trading (OFT) overturns a decision in a test case heard in the High Court in November 2004 that ruled in the credit card companies' favour.

Then Justice Gloster held that the guarantees to reimburse consumers under section 75 of the Consumer Credit act 1974 did not extend outside the UK.

Lloyds TSB had originally spearheaded the move for a judicial ruling, along with Tesco Personal Finance (part of the Royal Bank of Scotland Group) and American Express Services Europe, claiming that the Act was never meant to cover transactions made outside the UK.

The banks wanted clarification of the law because they fear a growing number of claims and particularly "consequential losses".

"The amounts that the banks could be liable for are not restricted to the amount put on the card. We are effectively being turned into insurers, which is not our role," explained a spokeswoman for Lloyds TSB back in 2004.

However although the ruling went in the bank's favour, Lloyds TSB said at the time it would continue on a voluntary basis to pay claims on overseas transactions up to the amount charged on the card.

Commenting on yesterday's ruling, Lloyds TSB said the original case was not about reducing consumer protection but to gain legal clarity and protect the banks from extortionate  claims.

"We are disappointed in this decision because, as a point of principle, we do not believe 'connected lender liability' should apply to foreign credit card transactions.

"This 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 company for millions of pounds in consequential losses," the banks said in a statement.

Lloyds TSB is now considering whether to appeal against this judgment to the House of Lords.

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