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Consumer Contract Credit
Consumers' behaviours in the twenty-first century are wholly different to those thirty years ago. With rapid developments in information technology and major economic booms, we are essentially living in a global platform. Consumers are no longer geographically restricted to buy groceries from local towns but are able to buy produce from “the world”. These developments have also created opportunities for rogue traders to take advantage of consumers, so the safeguard relies greatly on contract law.
The key case I would use is Office of Fair Trading v Lloyds TSB Bank plc and others  UKHL 48 (the case). This case has reflected an important principal in English contract law – “consumer-welfarism” – which will be examined in detail below.
Consumer protection in contract law is not a new ideology when it is evidenced in a myriad of statues enacted as early as the nineteen-seventies, to give some examples, the Unsolicited Goods and Services Act 1971, Sale of Goods Act 1979, Unfair Contract Terms Act 1977, Consumer Protection Act 1987, Unfair Terms in Consumer Contracts Regulations 1994 (SI 1994/3159) and Consumer Protection (Distance Selling Regulations) 2000 (SI 2000/2334). The list is non-exhaustive and the indication is clear – there is a strong need to protect consumers who doesn't know the rules of the marketplace, and who are in a weaker position to bargain with abundantly resourced enterprises.
Consumer Credit Act 1974
This case concerns the Consumer Credit Act 1974. Under s75(1) of the Act, “a credit cardholder having a claim against a supplier for misrepresentation or breach of contract could pursue the same claim against the lender, who would be jointly and severally liable with the supplier.” (Beale, pp. 38-267). This is known as the “connected lender liability” which is particularly useful for a consumer, as Which? magazine points out, “if the retailer or trader has gone bust or it doesn't respond to your letters or phone calls; this meant that consumers no longer has to reach a stalemate with the retailer or trader before contacting the credit card company.” So, it is clear that consumers are protected as early as 1974, but is this sufficient in 2008?
The issue of this case is whether s75(1) applies to overseas transactions, because Parliament in 1974 would not have expected a consumer to shop internationally or globally. Both the Court of Appeal and House of Lords held that it does. Although much of the reasoning is based on construing section 75, an inference could be drawn from the judgments of Lord Hoffmann and Lord Mance that there is a tendency to protect cardholders by allowing them to a right to indemnity. In paragraph 7 of the judgment, the court stated that “card issuers choose to authorise the use of their cards by foreign suppliers … they can be expected either to make their own arrangements about indemnity against liability under section 75(1) or accept that the commercial advantages of allowing foreign use outweigh the absence of a right of indemnity.” This reasoning tells us that credit card companies should bear their own risk when issuing cards to consumers. Furthermore, this reasoning indicates the court's readiness to place consumer rights above the risks borne by credit card companies.
This case is important for two reasons. Firstly, it affirmed the court's willingness to offer protection for consumers or being consistent with Parliament's intention. Secondly, it has a broad implication on consumer behaviour which marks a milestone on the contract law of consumer-welfarism. Prior to 1980s, no one would have imagined buying books or groceries online with a few clicks. With the massive expansion of the world-wide-web, internet shopping has never been any easier; this is particularly true for the young generation. In fact, twenty-first century people no longer regard the Internet solely a medium for entertainment but a means for shopping as well. This is evidenced when multi-billion enterprises provide online shopping services: such as Tesco, Dell, eBay, Amazon and many more. The term “e-commerce” has then evolved from an unknown terminology to a serious topic for business studies.
Fraud and misconduct
The most worrying factor for consumers is perhaps the nature of e-commerce where some regard it as a fertile environment for fraud and misconduct. Consumers are prone to identity thefts and risks involving lost of personal data. Alongside these common risks, little are aware of their hassle to access to remedies. Many, including myself have experienced the ridiculously hideous procedure to ask for a refund – calling the supplier, requesting to talk to the manager, waiting endlessly and getting irresponsive replies. This is particularly true when we are shopping online or abroad where the supplier of goods or services is too remote to reach. We, consumers are vulnerable to such rogue traders.
A popular way for consumers to pay online is by credit cards. This is advantageous because it offers “a form of insurance for consumers against not only insolvency but also non-performance or poor performance of the contract.” (Brownsword & Howells, p. 307). If e-commerce is to be successful, consumers must be confident in using their credit cards, which is exactly the crux of this case. Martyn Hocking, Editor of Which? Money says: “This positive ruling will remove the uncertainty surrounding purchases overseas and over the internet, and consumers will be able to shop with greater confidence.” This is also why Amazon.co.uk guarantees to cover liability for unauthorised use of credit cards in order to grant confidence to consumers. Crimes relating to information technology have its impact not only on consumers but also businesses. Therefore, the underlying principle of consumer-welfarism is essential for e-commerce to continue to boom.
Looking more globally, this case is working towards reconciliation with world standards. Many countries are forming alliances and multinational organisations are working on e-commerce consumer protection initiatives including the Organisation for Economic Cooperation and Development. In particular, with regard to European law, there has long been a consumer credit directive which provides what is known as the section 75 rights. In fact, the connected liability provisions of Article 11 of the directive has been criticised as somewhat opaque and rather weak – “Not only is the consumer required to have first exhausted his remedies against the supplier before turning to the creditor, but the grantor of the credit card and the supplier of the goods or services [must] have a pre-existing agreement whereunder credit is made available exclusively by the grantor of credit to customers of that supplier for the acquisition of goods or service from that supplier” (Brownsword & Howells, pp. 305-6). By contrast, the House of Lords' decision coupled with the section 75 rights is much more superior to the EC Directive. In my view, this case is a pioneer decision in the law of consumer protection amongst most countries or international institutions.
In recent years, Europe has been active in promoting consumer protection in areas of e-commerce by adopting several directives. This has demonstrated that the cross-border element in internet shopping needs a common framework of regulation and it is high time that the United Kingdom, as part of EU, turn to the issue of collaborating with the contract law in Europe. In February 2003, the European Commission published a report stating EC law should “indirectly remedy the fragmentation of national contract laws” in order to “facilitate the smooth functioning of cross-border transactions”. In the subsequent year, a project known as the “Common Frame of Reference” (CFR) has started which aims for future EC regulation in this field. A lot of work is being undergone and it is envisaged that the CFR will be adopted in 2009. This case serves an important role because it sets an example for other EU member states and has great influence in the future.
In summary, since the nineteenth century, English contract law has been influenced by the needs of modern society. It has taken little interest in doctrinal developments but ideological expansions – consumer-welfarism. This paper has examined how the case affirms this idea and more importantly, how it conforms or even supersedes European or international laws. It is envisioned that consumers will continue to play a key role in English contract law.
- Adams, J., & Brownsword, R. (2007). Understanding Contract Law (5Rev ed.). Sweet & Maxwell.
- Beale, H. (Ed.). (2004). Chitty on Contracts (with Fourth Cumulative Supplement to the Twenty-Ninth Edition) (29th ed.). London: Sweet & Maxwell.
- Brownsword, R. (2006). Contract Law: themes for the twenty-first century (2nd ed.). OUP.
- Brownsword, R., & Howells, G. (1999). "When surfers start to shop: Internet commerce and contract law." Legal Studies , 19 (3), 287-315.
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