Plastic's not so fantastic in the sun; Buyer beware. Credit card

Sunday Herald, The, Aug 10, 2003

There is nothing more annoying than arriving home from holiday to discover the personal hi-fi or camera you bought while away turns out to be a dud, or the carpet you ordered abroad bears no resemblance to the one seen in the shop if it ever arrives, that is.

Even worse is arriving at your holiday destination to discover the luxury suite is a wooden shack with none of the facilities promised.

Getting any sense out of the traders who hung you out to dry can be exquisitely painful over hundreds of miles and when conversing in a foreign language; not that language seemed to be a problem as they delivered the sales pitch. Getting compensation is even more challenging.

Which is why many holiday makers turn to their credit card companies for redress. In theory if you have paid with your credit cards for goods or services worth more than (pounds) 100, your card issuer is jointly liable for any losses you sustain.

That's the way it works in the UK anyway. However, when it comes to making claims about overseas firms, the picture is more complex. Consumer bodies claim card issuers must pay up on overseas losses in exactly the same way. The banks argue that they are not legally obliged to do, although in practice many of them do. But they do so on a voluntary and case by case basis which guarantees consumers very little by way of protection.

Such is the confusion, that a top consumer watchdog, the Office of Fair Trading, is going to court later this year when it will argue the matter out with Lloyds TSB. It is being billed as a friendly match, with Lloyds simply acting on behalf of all the banks.

Ironically, the Consumers' Association is unhappy the matter is going to court at all and believes the OFT is mistaken to force the issue in a formal hearing.

This is because almost everything about the way our credit laws operate is tangential. Many of the protections we take for granted are something less than enshrined in law. Much is simply good practice, which has developed over the years as much as a result of consumer pressure, than because the legal case is watertight. The Association is concerned that a judge, who is forced to take a pedantic view of the law, may not only throw out overseas protection, but in some way dilute that which protects UK transactions.

Furthermore, pending EU legislation on consumer credit will anyway undermine UK law, potentially allowing banks, if they so choose, to wriggle out of their obligations.

The problem is that consumer credit law goes back to the 1974 Consumer Credit Act and is regarded as an anachronism in the 21st century. It was also badly drafted at the outset.

Since then customers with any credit agreement have been able to pursue their credit card companies for recompense where they have a grievance about faulty goods or services provided they have paid using their plastic.

This has been seen as a very valuable safety net, and is a major incentive for many customers to use their credit cards even when they have no intention of borrowing money.

Though the credit card industry has always been happy to provide this safety net in the UK, where they are usually able to claim back any compensation paid from the supplier, the banking industry has always argued strongly that the relevant provision of the Consumer Credit Act, referred to with Orwellian chill as Section 75, was never intended to cover credit cards at all, but rather long-term hire purchase contracts more prevalent at the time. Unfortunately, there is a grain of truth in this.

David Gagie, managing director of Lloyds TSB consumer lending, explains: "We have never accepted that Section 75 applied to credit cards, but we agreed a voluntary code which allowed it to work, and we are happy to continue that arrangement.

"But we have become concerned of late by the OFT's insistence that we acknowledge that the law applies in exactly the same way for overseas transactions and that the amount of our loss is not limited to the price paid by the card. In other words our losses are potentially unlimited."

That said, claiming has never been easy and some banks' first line of defence is to automatically dispatch a letter saying they are not liable, with many complaints falling by the wayside at this first hurdle.

Others advise customers to pursue the dispute with the retailer. While accepting that this makes sense in the first instance, as the matter may be easily resolved that way, the OFT is adamant that this approach is not strictly necessary, and that the banks are equally liable.

Claims become even more difficult and the legal position murkier when it comes to overseas transactions. The card industry is unanimous in believing Section 75 absolutely does not apply to overseas transactions, although most will look at claims on a case by case basis. The court case later this year should clarify the issue once and for all.

But the Consumers' Association is concerned that courts, which take a highly legalistic view of the law, can return some very bizarre judgments over consumer affairs.