The Consumer Credit Act 1974

Published: 2021-07-02 11:05:05
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1.Peter’s Purchase of The TV It is likely that Peter will have a claim as against his credit card company. Under section 75 of The Consumer Credit Act 1974, consumers paying for goods with a credit card are protected by a provision that allows them to make a claim directly against their credit card company or the supplier if they discover problems with the goods or services purchased. This is why many people pay with a credit card. The sections, which is based on the idea of a “business connection” between the creditor and the supplier, applies only in the case of a regulated agreement- that is only where the price of the goods is more than A£100 or less than A£30,000.00[1] and only if the cardholder is an individual, not a company and only applies to credit cards. The credit card issuer and the supplier are jointly liable if the consumer has a valid claim for misrepresentation and/or breach of contract by the supplier. The section states that “he shall have a like claim against the creditor, who, with the supplier, shall accordingly be jointly and severally liable to the debtor. The card issuer is liable not merely for the amount of the credit advanced under the transaction or the price of the goods or services bought but for all reasonably foreseeable consequential loss which may of course run into hundreds of thousands of pounds – and thus goes beyond what is required in Community law under Article 11 of the current Consumer Credit Directive. The ‘connected-lender-liability’ applies only in respect of regulated consumer credit card agreements and not to the use of debit cards. The Card Company may therefore be liable for loss, including even consequential loss to Peter, such as the insolvency of the company. Because the liability is joint and several, the card holder can elect to sue the company without taking steps against the supplier first. The reason for this provision[2] is that although the two contracts made by the card holder – one with the supplier and the other with the card company – are independent of each other, the supplier and the card issuer are in a joint venture. This means that in some respects the card holder is vulnerable in comparison with the other parties. Card holders who purchase defective good would have no right to refuse immediate payment to the card issuer, whereas they might be able to withhold payment to the supplier until the goods were replaced or the defect remedied. It does not matter that only part of the payment was made by credit card[3]. Therefore Peter may be able to recover the cost of the television from his credit card company. 2.Peters Stolen Debit Card Card issuers will bear the full loss for all transactions not authorised by the Customer after the issuer has been told of the mishap – unless the customer has acted fraudulently or maybe with “gross negligence. This is important in relation to the transactions made before Peter has reported his card as being stolen .The Banking Code suggests that the bank will not be liable for money fraudulently spent if the card holder himself has been fraudulent and also, probably will not be liable if the card holder has been grossly negligent. Some examples of what the banks suggest would amount to gross negligence are suggested in the Code. It would be grossly negligent for card holders and this includes writing the PIN down on the card or on anything usually kept with it. The Ombudsman considers that gross negligence means “if not recklessness, something more than mere carelessness.” In these circumstances the bank may be able to defend itself against a challenge by the customer to the debit, by reference to the customer’s behaviour. These fall into two types: (a) where the customer’s carelessness in drawing up the cheque has facilitate the making of forgery; and (b) where the customer knows of the forgery and has not informed the bank. These estoppels preventing the customer from disputing the bank’s debit in certain circumstances, are founded on duties owed by the customer to the bank which arise from the banking relationship. In Joachimson, Atkin L J said: “the customer, on his part, undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or facilitate forgery[4].” Estoppels are an all or nothing concept they either bar the Claimant completely or will not work at all[5]. This means that when a party relies on estoppel, any contributory negligence of the other party may not be taken into account. It operates: (a) if there is a statement of fact, or an omission to speak where there is a duty – mere silence, omission or failure to act cannot amount to a representation on which an estoppel can be based; (b) the other person relies upon that statement or its omission; and (c) he or she suffers detriment from that reliance, or the circumstances are such that it is inequitable to allow the other person to go back on what he or she has said or omitted to say. The situation here would fall into the first category, i.e. as being a result of Peter’s carelessness. The customer has a duty to draw cheques carefully, so that fraud is not facilitated. The first of these duties of the customer goes back to the case of Young v Grote[6] where a customer left blank signed cheques with his wife when he went away. His wife, unaccustomed to business matters, passed one to the clerk to fill out, who filed it out in such a way that he could later fraudulently raise the amount to be cashed. The court held that the “gross negligence” of the customer estopped him from claiming that the bank should not debit his account, and he was held to be liable for the loss. The principle was accepted by the House of Lords in London Joint Stock Bank v Macmillan and Arthur.[7] Here, one of the duties of the confidential clerk of a firm of merchants was to fill in cheques and present them to partners for signature. A partner signed one such cheque, which had not words and only figures “2.0.0” written on it. The clerk then inserted the words “one hundred and twenty pounds” and altered the figures to read “120.0”. He presented the cheque and was paid cash. The House of Lords held that the firm had been negligent and was estopped from suing the bank. The customer was bound to take usual and reasonable care in drawing the cheque to prevent forgery. If the cheque is drawn so that it invites “an increase in the amount by forgery if the cheque should get into the hands of a dishonest person, forgery is not a remote, but a very natural consequence of negligence of this description[8]” It would seem that the circumstances here fit with the cases described above and on the facts it would appear that Peter has been “grossly” negligent and therefore the bank will not be liable for paying the mandates and he will not be able to recover the money from the bank as she will be estopped from doing so. The Code Makes it plain – that compensation for losses will be limited to any amounts wrongly charged to customer’s accounts and any interest on those amounts. Consequential loss is not recoverable. In relation to the transactions that were made after the card was reported stolen Peter’s liability for transactions not authorised by him will be limited to a maximum of A£50 in the event of misuse before the card issuer has been notified that a card has been lost or stolen or that someone else knows the PIN. 3.Peters Digital Cash Card A digital cash card is an instrument with a computer chip embedded in it which can be “charged” by a bank with part of its customers current account balance or a line of credit, enabling it to be used for, and to record, a series of transactions until the available balance is exhausted. Electronic money is defined in the E-Money Directive as monetary value stored on a chip card (pre-paid card or ‘electronic purse’) or on a computer memory (network or software money) and which is accepted as a means of payment by undertakings other than the issuer. Under the Directive, electronic money must be redeemable for cash at equal value and issuers of electronic money are required to implement safeguards against money laundering. In implementing the Directive at national level, the authorities in some member states decided that in certain circumstances, by supplying pre-paid phone cards, mobile operators in practice issue electronic money and that therefore they should comply with existing EU rules concerning its issuance. This consultation aims to help establish among other things whether it is necessary for the rules which apply to electronic money to be applied in full to pre-paid phone cards. The Banking code recommends customers treat these digital cash cards like cash in a wallet as any money left on the card at the time it is lost or stolen will be lost in the same way as it would be if a wallet was lost. It goes on, however, to provide the same assurance of limiting customers’ liability for such loss to A£50 (unless they have acted with fraud or gross negligence) as banks provide for ordinary cards[9]. Much of the rules on digital cash cards will of course depend on how they are developed. The most common method used for cardholder verification at present is to give the cardholder a PIN (Personal Identification Number) which he or she has to remember: the cardholder has to type in the PIN at each request for signing a message, or perhaps only once per session (e.g. when the card is inserted in the card reader). PINs, however, have several disadvantages, including the risk of being stolen or abused. The only truly effective method of Cardholder Verification is the measurement of a physiological characteristic unique to an individual and incapable of fraudulent replication or abuse. Such biometrics include Iris and Retinal scans, Face or Hand geometry, and of course DNA, but the most likely and most acceptable attribute is the fingerprint. As such cards are not common use yet is difficult to assess Peter’s liability as it is difficult to say how secure they should be and to comment on the standard of care that will be owed by both Peter and the bank. It may be that the bank owe a higher duty of care because biometrics are used, which should make them impenetrable. Bibliography Legislation S I 1983 No 1571 (Consumer Credit (Increase of Monetary Amounts) Order 1983) Consumer Credit Act 1974 Reports and Codes Crowther Committee in para 6.6.20 of its 1971 Report Banking Code (1999) Cases Avon County Council v Howlett [1983] 1 ALL ER Jarrett v Barclays Bank plc; Jones v First National Bank PLC; First National Bank Plc v Peacock [1997] 6 Bank L R 66 London Joint Stock Bank v Macmillan and Arthur [1918] AC 777 Young v Grote (1827) 4 Bing Books Cranston R, (2005) “Principles of Banking Law”, Oxford University Press Ellinger E, Lomnicka E & Hooley R, (2002) “Modern Banking Law”, Oxford University Press Geva B, (2002) “Bank Collections and Payment Transactions” Oxford University Press 308-309 Penn G & Wadsley J, (2000) “The Law and Practice of Domestic Banking”, Sweet and Maxwell 1

[1] See S I 1983 No 1571 (Consumer Credit (Increase of Monetary Amounts) Order 1983) [2] See for example Crowther Committee in para 6.6.20 of its 1971 Report [3] Jarrett v Barclays Bank plc; Jones v First National Bank PLC; First National Bank Plc v Peacock [1997] 6 Bank L R 66 [4] [1921 3 K B 110 at 127 [5] See for example Avon County Council v Howlett [1983] 1 ALL ER [6] (1827) 4 Bing [7] [1918] AC 777 [8] [1918] AC 777 at 789-790 [9] Banking Code (1999 paragraph 4.13

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