Office of Fair Trading v Lloyds TSB Bank Plc & Ors

Connected lender liability under section 75(1) of the Consumer Credit Act 1974 applies to credit-card purchases made through either three-party or four-party arrangements. A card agreement finances the purchase and remains restricted-use credit because the card can be used only with suppliers who accept the relevant card.

The statutory requirement for arrangements between creditor and supplier includes indirect arrangements created through a merchant acquirer or card network. Section 187 extends rather than restricts that concept.

Liability also applies where the supply transaction occurs abroad. The debtor’s statutory claim against the creditor does not depend upon the foreign supplier being amenable to English jurisdiction. The creditor’s indemnity under section 75(2) is ancillary and does not restrict the consumer protection conferred by section 75(1).

The Office of Fair Trading sought declarations concerning the liability of credit-card issuers under section 75(1) of the Consumer Credit Act 1974. Lloyds TSB Bank plc and Tesco Personal Finance Ltd principally operated through four-party card arrangements involving independent merchant acquirers. American Express Services Europe Ltd intervened because most of its transactions used a three-party structure.

Gloster J held that four-party transactions attracted connected lender liability, but that transactions entered into abroad did not. Lloyds TSB and Tesco challenged the first conclusion. The Office of Fair Trading challenged the second.

The Court of Appeal had to decide whether section 75 liability applied to purchases made through a four-party structure and whether it applied to supply transactions entered into outside the United Kingdom.

1. The Office of Fair Trading's appeal was allowed and the card issuers' cross-appeal was dismissed. Connected lender liability under section 75 of the Consumer Credit Act 1974 applies to regulated credit-card transactions conducted through either three-party or four-party structures and to transactions entered into within or outside the United Kingdom.

2. A card issuer finances the cardholder's purchase in a four-party transaction. The function of the credit agreement is to provide the means of payment at the point of purchase. Interposing a merchant acquirer does not alter the financial basis supplied by the card issuer.

3. The agreement is restricted-use credit within sections 11(1)(b) and 12(b). Although a card may be accepted by many suppliers, it can be used only with suppliers who have agreed to accept that card. The identity of the person who obtained the supplier's agreement is immaterial.

4. The word “arrangements” in section 12(b) embraces indirect commercial structures. Section 187(1), through the expression “shall be treated as”, extends rather than exhaustively defines or restricts the arrangements capable of satisfying section 12(b). Card-network arrangements therefore constitute arrangements between the issuer and participating suppliers, despite the absence of a direct contract.

5. Section 75(1) contains no territorial distinction. Its reference to a “like” claim creates a statutory cause of action corresponding to the debtor's cause of action against the supplier. It does not require identical remedies or require the underlying claim against the supplier to be justiciable in England.

6. Section 75(2) creates a corresponding statutory indemnity in favour of the creditor against the supplier. That right is ancillary to the primary consumer-protection purpose of section 75(1). Its possible effect upon a foreign supplier does not justify restricting the debtor's right. Practical difficulties in pursuing a foreign supplier are part of the commercial price of permitting cards to be used abroad.

7. Sections 9(2) and 16(5)(c) support the conclusion that the statutory scheme contemplates foreign transactions. Section 75(3)(b) is correspondingly construed by reference to the sterling equivalent of a cash price stated in foreign currency.

1. Court of Appeal (Civil Division): By [2006] EWCA Civ 268, allowed the Office of Fair Trading's appeal concerning foreign transactions and dismissed the card issuers' cross-appeal concerning four-party transactions.
2. High Court, Queen's Bench Division (Commercial Court): Gloster J declared that four-party credit-card transactions attracted connected lender liability, but dismissed the application for a corresponding declaration concerning transactions entered into abroad. No citation is stated in the judgment.