Select Committee on European Union Minutes of Evidence


Memorandum by Barclaycard

HOUSE OF LORDS EUROPEAN COMMITTEE—SUB-COMMITTEE B E-COMMERCE: POLICY DEVELOPMENT AND CO-ORDINATION IN THE EU

INTRODUCTION

  1.  Barclays welcomes the opportunity to provide additional input into this inquiry. Please find below a detailed analysis of the current legal situation concerning consumer redress by credit card issuers, and our thoughts on some of the suggestions being put forward to enhance consumer confidence when buying on the internet.

  2.  Whilst it is obviously important to address the legal aspect of this issue, we feel there are other ways in which business, and the financial services industry in particular, can help address consumer concerns.

  3.  At Barclaycard, Europe's largest credit card issuer, we take consumer confidence and managing fraud on the internet very seriously. Last year we launched an on-line Charter[7] reconfirming that customers will never be liable for unauthorised transactions and that all existing Barclaycard cover also extends to purchases over the internet. Our website also offers shoppers advice about surfing and purchasing on the world-wide web. Finally, the website offers a comprehensive listing of UK on-line stores, which have each been individually vetted by Shopsmart, so customers can have the confidence to shop on-line.

  4.  With regard to shopping in the EU Barclaycard has a voluntary arrangement, whereby we extend the protection consumers enjoy in the UK to any foreign transaction. This is not statutorily required, but ensures that people can have confidence purchasing anywhere in the world.

THE LEGAL POSITION

  5.  Credit card companies do become involved in a wide variety of disrupts arising between Cardholders and Suppliers whether those Suppliers be located at home or abroad[8]. Such involvement is not limited to card transactions effected over the Internet: in addition to the face to face transaction business may undertaken by mail and telephone order.

  6.  The most common types of complaint relate to goods/services which

    —  have been supplied but are of the wrong description

    —  are damaged/faulty/incomplete

    —  delivered late or not at all.

  7.  Whilst Cardholders will generally try to resolve the matter with the Supplier direct they will often at the same time approach their Card Issuer. Sometimes the Card Issuer will be their first choice.

  8.  The two main card schemes—VISA International and MasterCard International—operate under detailed and complex rules. Part of this framework deals with the resolution of disputes between the Card Issuer and its Cardholders and the merchant acquirer and its Suppliers or Merchants.

  9.  The majority of complaints received by a Card Issuer can be handled satisfactorily by reference to the card scheme rules. In addition the credit card holder in the United Kingdom can invoke and benefit from the rights provided by the Consumer Credit Act 1974, in particular the provisions of Section 75 (S75)—Connected Lender Liability.

  10.  When a complaint is received the Card Issuer will ask for evidence from the Cardholder to support his claim. If the required evidence is produced (and this will vary according to the nature of the claim) then in certain circumstances the Card Issuer will have a limited period (normally 180 days from the original transaction date) to charge back the value of the disputed transaction to the Merchant Acquirer ie the Card Scheme Member which is in contract with the Supplier.

  11.  The Merchant Acquirer in turn, through its contractual arrangements with the Supplier, will have the ability to recover that sum. Of course, if the Supplier has become insolvent in the interim then the liability rests with the Merchant Acquirer.

  12.  If such chargeback is not in conformance with the Card Scheme Rules then the Card Issuer has to decide whether to enforce payment against the Cardholder under the card agreement or to absorb the loss.

  13.  If there is some doubt in relation to the validity of the chargeback then the matter may be referred to the relevant Card Scheme body for an arbitration to take place between the Card Issuer and the Merchant Acquirer.

  14.  If a Cardholder has been promised a refund by the Supplier and for whatever reason the Supplier defaults on the promise then the Cardholder can obtain a refund, on submission of the relevant proof, from his Card Issuer. The Card Issuer will then attempt to recover that sum from the Merchant Acquirer under the Card Scheme Rules.

  15.  The procedures which are outlined above apply to all card transactions whether they be conducted face to face with the Supplier, by mail or telephone order or over the Internet. They also apply equally to domestic or cross border transactions.

  16.  Within the United Kingdom credit card holders also have the benefit of the connected lender provisions of S75 of the Consumer Credit Act 1974. S75 makes a connected lender jointly and severally liable with the Supplier for any breach of contract or mis-representation by the Supplier. The provisions apply to any single item to which the Supplier has attached a cash price of between £100 and £30,000. Thus the Card Issuer is potentially liable not only for the value of the card transaction itself but also the value of the item (if greater) and any consequential losses caused to the Cardholder arising from the breach or misrepresentation.

  17.  In consequence of the joint and several liability provision the Cardholder will not infrequently choose to sue the Card Issuer alone, even if the Supplier is still trading. The Card Issuer will, of course, have no first hand knowledge of the facts of the dispute and will in such circumstances be forced to join in the Supplier in the legal action.

  18.  More commonly the Cardholder will issue proceedings against Supplier and Card Issuer. It will be evident that in these circumstances the Card Issuer will have little or nothing to add to the proceedings.

  19.  Under S75(2) of the Act the Card Issuer has a right of indemnity against the Supplier for losses incurred including costs reasonably incurred in defending the action.

  20.  However, it is submitted by Barclays that the Cardholder's primary course of action should be against the Supplier: only if the Supplier cannot, or will not fulfil the terms of a judgement should the Card Issuer be required to pay.

  21.  The Act itself is complex and open to interpretation, notably whether or not foreign transactions are covered. It is not proposed to go into these arguments here but suffice it to say that legal academic opinion is divided. The OFT takes the view that a Cardholder has the benefit of S75 wherever his card is used. Barclays has always opposed that view, a view which has generally prevailed in the lower Courts. There are no binding decisions yet.

  22.  Nevertheless Barclays has, as a voluntary policy, accepted the concept of S75 in respect of foreign transactions but only up to the value of the card transaction itself.

FUTURE ISSUES

  23.  Barclays is currently aware of the debate taking place within the EU Commission in relation to finding an easy workable solution for consumers to obtain redress when faced with a dispute arising with a Supplier domiciled in another jurisdiction. The Commission has been looking at the provisions of S75 of the Consumer Credit Act 1974 and its potential applicability to this situation. Whilst Barclays acknowledges that the prosecution of legal remedies against a Supplier domiciled in another jurisdiction by a consumer are impractical and difficult, it does not consider that the adoption of the S75 provisions in their current form are equitable for the financial services card sector.

  24.  In summary, Barclays:

    —  opposes the concept of unlimited consequential loss as imposing a disproportionate and onerous burden;

    —  believes that any liability should be limited to the value of the card transaction itself;

    —  believes that any attempt to make the card company primarily liable would place those institutions in an impossible situation. The card company will have little or no direct knowledge of the underlying facts surrounding the dispute. In addition there is the almost impossible task of segregating false claims from the genuine;

    —  believes the card company should provide secondary cover in the event that the supplier for any reason defaults on its obligations;

    —  supports the establishment of a pan European Ombudsman scheme to enable consumers to take action against the supplier in the first instance.

BARCLAYCARD ONLINE PROMISE

"Barclaycard lets you shop online with confidence"

  When you buy with Barclaycard you're never liable for unauthorised transactions. With Barclaycard you can relax—you're in safe hands.

"When you buy online with Barclaycard you are never liable for unauthorised transactions"

  If any unauthorised transactions occur on your account we will immediately suspend and investigate them for you. Whatever happens, you'll never have to pay for transactions you didn't make.

"All your existing Barclaycard benefits apply online"

  Furthermore, all your existing Barclaycard benefits apply online, from automatic Purchase Cover for items costing £50 or more, free extended warranty on most household appliances and valuable Rewards points."


7   Appendix 1. Back

8   Membership of the Card Schemes-VISA/MasterCard/Europay-is confined to banking institutions. There are broadly two types of membership.

A Card Issuer-an institution which is in contract with a consumer (cardholder) for the issue of a card (debit, credit or charge).

A Merchant Acquirer-an institution which is in contract with a supplier of goods/services (retailer, mail order company etc) for the acceptance of cards in payment for those goods/services.

Card Issuers form the larger element of Card Scheme Membership. Banking institutions may be both Card Issuers and Merchant Acquirers. Barclays falls into this category in the Untied Kingdom. 
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