Bought abroad on a UK credit card and the supplier has vanished? The card industry argued for years that s75 stopped at the border. The House of Lords disagreed, and for a consumer facing an unreachable overseas supplier, the claim against the issuer is frequently the only one worth having.
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Full name: Office of Fair Trading v Lloyds TSB Bank plc and others
Citation: [2007] UKHL 48; [2008] 1 AC 316
Court: House of Lords
Judgment: 31 October 2007 (unanimous)
Subject: Whether s75 connected lender liability extends to foreign transactions
Result: It does. UK card issuers are jointly liable with foreign suppliers.
Why This Case Matters
A consumer buys something abroad, or from an overseas website, with a UK credit card. The goods never arrive, the holiday company collapses, the property purchase falls through. Can they claim against the card issuer?
Before 2007 the card industry said no. Section 75 was, on the banks’ case, territorially limited: it created a joint liability with the supplier, and a UK statute could not sensibly impose that liability by reference to a foreign supplier’s obligations under a foreign contract governed by foreign law.
The House of Lords rejected that. The consequence is that a UK cardholder has a claim against a UK card issuer for a foreign supplier’s misrepresentation or breach, which, for a consumer facing an insolvent or unreachable overseas supplier, is frequently the only claim worth having.
The Facts
This was a test case rather than an individual consumer claim. The Office of Fair Trading brought proceedings against a group of card issuers to resolve the question of principle, which affected very large numbers of transactions.
The issue arose from the structure of modern card networks. In a four-party arrangement the cardholder’s issuer, the merchant’s acquirer, the scheme and the merchant are all distinct, and where the merchant is overseas the acquirer is typically overseas too. The banks argued that there were no relevant “arrangements” between a UK issuer and a foreign supplier, and that s75 could not have been intended to reach across borders in that way.
The Ratio Decidendi
The reasoning
The Committee approached the question through the purpose of connected lender liability. Where the sale and loan aspects of a transaction are closely intertwined, the lender and the seller are in effect engaged in a joint venture to their mutual advantage. The lender benefits commercially from the arrangement that produces the sale, and should accordingly bear a primary liability for the supplier’s default.
That rationale does not weaken because the supplier is overseas. If anything it strengthens, because the consumer’s practical ability to pursue a foreign supplier is far worse than their ability to pursue a domestic one, which is precisely the mischief the provision addresses.
The Committee was also unpersuaded by the practical objections. The existence of a network structure in which the issuer does not contract directly with the merchant did not prevent the statutory “arrangements” from existing.
Obiter and Limits
- The conditions still apply. The case removes a territorial restriction; it does not remove the statutory requirements. There must still be a regulated agreement, a debtor-creditor-supplier relationship, a claim against the supplier, and consideration within the financial limits.
- The financial limits apply to the cash price of the item, not to the amount charged to the card. A part-payment by card on a qualifying item can bring the whole claim within s75, which is one of the most valuable features of the section and is regularly overlooked.
- Foreign law still governs the underlying claim. Whether the supplier is in breach or has misrepresented is determined by the law applicable to the supply contract. The card issuer’s liability is a like liability, so the foreign law analysis has to be done.
- Observations on the network structure. The discussion of four-party card arrangements is descriptive of the market as it then stood and should not be treated as fixing the analysis for every payment structure, as Steiner v NatWest later demonstrated, an intervening payee can still break the chain.
Where It Sits Among the Consumer Credit Cases
| Question | Authority |
|---|---|
| Does it matter that the supplier is abroad? | No: OFT v Lloyds TSB |
| Was the payment made to the supplier, or to someone else? | Steiner v NatWest: an intervening payee can defeat the claim |
| Does rejecting the goods release the credit agreement? | Yes: Durkin v DSG Retail |
| If s75 fails, is there another route? | Plevin: s140A unfair relationship, with the burden reversed |
Practitioner Application
- Do not accept a territorial refusal. Card issuers still occasionally decline foreign-transaction claims on grounds this case disposed of. Cite it directly.
- Check the cash price, not the card payment. A deposit paid by card on a qualifying purchase can carry the whole claim. This is the single most under-used feature of s75.
- Identify the actual payee. Get the card statement and the merchant descriptor. Where payment went to an agent, trustee or intermediary rather than the supplier under the impugned contract, Steiner is the obstacle and a different route is needed.
- Address the governing law of the supply contract. The creditor’s liability mirrors the supplier’s, so establishing breach or misrepresentation may require evidence of foreign law.
- Consider chargeback in parallel. It is a scheme rule remedy with its own short time limits, and it is often faster than a s75 claim even though it is weaker in principle.
- Consider the Financial Ombudsman Service. It applies a fair and reasonable standard, is not confined to the strict statutory analysis, and is free, subject to its monetary limits and time bars.
- Watch limitation on every route.
Frequently Asked Questions
Does section 75 cover purchases made abroad?
Yes. Office of Fair Trading v Lloyds TSB Bank plc [2007] UKHL 48 held that connected lender liability under s75(1) applies to foreign transactions without territorial restriction, provided the debtor is a UK debtor using a card issued under a regulated consumer credit agreement. Card issuers still occasionally refuse on this basis, and the refusal should not be accepted.
Why should a UK bank answer for a foreign supplier?
Because where the sale and loan aspects of a transaction are closely intertwined, the lender and seller are in effect engaged in a joint venture to their mutual advantage, and the lender should bear a primary liability for the supplier’s default. That rationale is stronger, not weaker, where the supplier is overseas, because the consumer’s ability to pursue them directly is worse.
I only paid a deposit by card. Does s75 still apply?
Very likely yes, and this is the most under-used feature of the section. The financial limits apply to the cash price of the item, not to the amount charged to the card. A part-payment by card on a qualifying purchase can carry a claim for the whole loss.
Does foreign law matter to the claim?
Yes. The creditor’s liability under s75 is a like liability to the supplier’s, so whether the supplier is in breach or has misrepresented is determined by the law applicable to the supply contract. Removing the territorial restriction does not remove the need to establish the underlying claim under the governing law.
What can still defeat a s75 claim on a foreign purchase?
The debtor-creditor-supplier link. If the card payment went to an agent, trustee, escrow provider or intermediary rather than to the supplier under the contract complained of, the claim may fail on Steiner v NatWest grounds regardless of where the supplier was. Get the card statement and the merchant descriptor before pleading.