In Office of Fair Trading ("OFT") v Lloyds TSB Bank plc, Tesco Personal Finance Limited Ltd and American Express Services Europe ("Respondents") (2006), the OFT appealed against a decision that credit card transactions entered into abroad did not attract connected lender liability under s75(1) of the Consumer Credit Act 1974 (the "Act").
The OFT brought proceedings seeking declarations that for all transactions financed by credit cards issued by the Respondents under consumer credit agreements, the Respondents were subject to connected lender liability under s75(1) of the Act. In cases where a lender provided credit for the purchase of goods and services pursuant to arrangements between himself and the supplier, the debtor who had a claim for misrepresentation or breach of contract against the supplier would have a remedy against the lender as well.
Credit card agreements involving a card issuer, card holder and a supplier are usually described as a three-party structure. They become a four-party structure where a "merchant acquirer" which recruited suppliers willing to accept and issue its card was interposed between the card issuer and the supplier as an independent party. The judge at first instance granted the OFT a declaration that credit card transactions entered into under a four-party structure attracted connected lender liability; however, he dismissed its application for a declaration that liability attached in respect of transactions entered into abroad whether under a three- or four-party structure. The OFT argued that connected lender liability under s75(1) of the Act arose in relation to any transaction financed by a credit card issued in the UK whether the transaction was entered into under a three- or four-party structure and whether the transactions were entered into the UK or abroad. The Respondents, however, argued that s75(1) of the Act did not apply to a four-party structure because such a structure had been practically unknown when the Act was enacted.
On appeal, the Court held that although a four-party structure was not common in 1974, it did exist and despite the change in structure there had been no significant change in the state of affairs to which the legislation was originally directed. An agreement under which a card issuer made credit available to the card holder for use in connection with transactions occurring under a four-party structure fell within the debtor-creditorsupplier provision of the Act meaning that connected lender liability attached to transactions entered into by the card holder. Whether under a three- or four-party structure, the card could only be used to obtain goods and services from suppliers who had agreed to accept those cards and in such circumstances the agreement was not excluded from the definition of a restricted use credit agreement by s11(3) of the Act. The restricted use credit agreement had been made by the card issuer under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier within the meaning of s12(b) of the Act. Even when merchant acquirers were involved there were arrangements in existence between the card issuer and supplier who had agreed to accept the credit card. Lastly, the fact that more credit card transactions were carried out abroad to date than in 1974 did not affect the basic elements of the credit agreement. As a matter of construction, the provisions of s75 and the rest of the Act did not compel the conclusion that s75(1) related only to transactions in the UK.
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