Banks in the United Kingdom have long resisted an attempt to expand their liability under the Consumer Credit Act 1974, s 75. Particular controversy has surrounded the question whether such liability can arise when a bank’s customer uses his or her credit card to pay for substandard goods or services. The exponential increase in credit card use over recent years has led credit card issuers to oppose the imposition of connected lender liability in two situations in particular: when a customer uses their credit to purchase goods or services from a supplier who has been recruited to a credit card network by a merchant acquirer; and when a credit card has been used abroad. Given the commercial significance of these issues to the United Kingdom banking community, their resolution in Office of Fair Trading v. Lloyds TSB Bank is timely.

An innovation of the Consumer Credit Act 1974 (“CCA 1974”) was the introduction of a regime of connected lender liability, whereby a consumer (or “debtor”) has a right of recourse against a lender (or “creditor”) that provides the finance for the acquisition of goods or services from a third party merchant (or “supplier”). CCA 1974, s 75 renders the creditor jointly and severally liable with the supplier for any misrepresentations made to the debtor with respect to the goods or services supplied and for any breaches of its supply agreement.1 Whilst such a right of recourse will clearly be of greatest utility when the supplier proves to be recalcitrant, untraceable, or insolvent, there is nothing in CCA 1974, s 75 to prevent a debtor from making the creditor his first port of call, even when there is a perfectly viable claim against the supplier.2 When one also considers the fact that creditors have no specific statutory defences to such a claim and bear exactly the same responsibility as the supplier for any consequential losses that are not otherwise too remote,3 it becomes immediately apparent that CCA 1974, s 75 represents a dramatic expansion in the scope of potential lender liability.4 While a creditor’s statutory right of indemnity against the supplier may sometimes help to mitigate this exposure,5 this will not always be the case. It is hardly surprising, therefore, that financial institutions have been so keen to limit the operation of CCA 1974, s 75.