Memorandum by Barclaycard
HOUSE OF LORDS EUROPEAN COMMITTEESUB-COMMITTEE
B E-COMMERCE: POLICY DEVELOPMENT AND CO-ORDINATION IN THE EU
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
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.
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.
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
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 schemesVISA
International and MasterCard Internationaloperate 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
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
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
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.
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
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 relaxyou'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
"All your existing Barclaycard benefits apply
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
Membership of the Card Schemes-VISA/MasterCard/Europay-is
confined to banking institutions. There are broadly two types
A Card Issuer-an institution which is in contract with
a consumer (cardholder) for the issue of a card (debit, credit
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. Back