Credit card firms remain liable for customers' losses

BY SIMON PINCOMBE

The credit card industry is to remain in the front line of consumer protection, Sir Bryan Carsberg, Director General of Fair Trading, said yesterday.

Credit card companies will continue to be jointly and severally liable with retailers for losses suffered by their customers, although the Office of Fair Trading is proposing that their current unlimited liability be restricted to the amount borrowed.

In publishing his proposals for the reform of consumer credit card law, Sir Brian has resisted pressure from the industry. It had lobbied hard for "second-in-line liability" under which the consumer would be required first to pursue a claim for damages against the supplier.

Sir Bryan said: "Most consumers do go to the supplier first but in some cases, for example where the supplier has gone out of business, it would be a pointless exercise."

The industry also failed to persuade the OFT to raise the minimum liability limit from £100 a purchase to £150. Because most cardholders spend in small amounts, this would have removed a disproportionate number of annual credit-card transactions from the liability net.

The monetary limits, which the OFT proposes should in future refer to the amount of credit granted rather than the purchase price of the item, will extend from £100 to £25,000.

However, consumers who pay a deposit by card and the balance in cash will lose their right to claim the full amount from the card issuer. But the OFT expects the number of such claims is likely to be small. The OFT won a significant concession on the contentious issue of overseas transactions. Last year cardholders spent roughly £3bn with their credit cards outside the UK, and the lenders have argued that their liability does not extend that far.

Sir Brian said he "did not agree" and announced that the majority of credit card companies had agreed to meet claims on overseas transactions on an ex-gratia basis for the amount of credit given until December 1996. After that the position would be reviewed. "This is a very significant improvement for consumers," he said,

The Consumers' Association, which had feared a significant reduction in consumer rights, welcomed the report and the commitment on overseas transactions in particular.

Ashley Holmes, head of legal affairs, said: "It is all very well for banks to say its unfair, but they have control where they put their stickers abroad and it is their responsibility to make sure that those shops are reputable."

Where a credit-card company meets a claim for goods or services which are covered by insurance or bonding schemes, the OFT proposes that the lender should be able to assume the rights the cardholder may have against the insurer or bond administrator.

Connected Lender Liability - by the Director General of Fair Trading available from: OFT, PO Box 2, Central Way, Feltham, Middlesex TW140TG