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Saturday, December 24, 2005


Bending the plastic and buying goods or services abroad may end up costing consumers a lot more than they bargained for. ADRIENNE MCGILL reports

ONE of the main benefits of using a credit card is being able to buy goods abroad.

But what happens when the quality of the goods or services purchased falls below the expected standard? Can consumers in the UK who use their credit cards abroad expect the same level of protection they would get if the purchase was made in the UK?

Card issuers and consumer associations have been arguing about this for decades. The level of protection offered to UK consumers on domestic transactions is in fact very high and exposes card issuers to liabilities which many consumers are unaware of.

In particular, if the goods or services paid for are defective and the consumer has a claim for misrepresentation or breach of contract against the supplier, then, provided that the consumer paid more than pounds 100 and less than pounds 30,000 for the goods or services, section 75 of the Consumer Credit Act 1974 gives them the option of suing the card issuer instead of the supplier.

But do these provisions apply with equal force to foreign transactions? It is never easy to pursue a foreign supplier. If section 75 were held to apply to foreign transactions then suing the UK card issuer would be a much easier option for consumers than pursuing the foreign supplier.

But would that place an unacceptable burden on the card issuers? They would effectively become insurers for millions of foreign supplies in situations where they would not know the supplier at all, would not have direct knowledge of the facts and would not be in a position to assess the merits of any claims.

Section 75 does not limit the liability of the cardholder to the amount spent on the card. If a consumer spends pounds 1,000 on plastic surgery abroad which then goes horribly wrong the card issuer could then be liable for the much larger sum needed to compensate the victim.

Against that background it is easy to see why card issuers have been concerned about their potential exposure to foreign claims, particularly given the exponential growth in foreign internet transactions.

In the absence of any clear authority from the courts, and under considerable pressure from consumer associations, some card issuers have in the past agreed to compensate consumers for foreign transactions on a voluntary basis, limiting the amount of compensation paid to the amount actually spent on the card.

Earlier this year though the Office of Fair Trading (OFT) took more formal steps to bring matters to a head by bringing a test case in the High Court. The case was finally decided on November 12 and, in a decision which is likely to be greeted with joy by the card issuers and dismay by consumer groups, the court ruled that consumers entering into foreign transactions are not afforded the same degree of protection as they are for domestic transactions.

In reaching her decision the judge explored the historical context in which the legislation had been drafted and concluded that it was a different world from the modern market place. The rights afforded to the consumer had been granted on the basis that the credit card issuer would have a right of indemnity from the supplier.

At that time it had been envisaged that the relationship between the credit card issuer and the supplier would be such that the credit card issuer would be able to put pressure on the supplier to deal with the customer complaint or face withdrawal of financing facilities.

However, in the modern market place, and particularly in the context of a foreign transaction, the card issuer would be unlikely to have such a relationship with the supplier. There was nothing either explicit or implicit in the Act which suggested that it should have extra-territorial effect.

Kevin McNamara of the Trading Standards Service in Northern Ireland said: "This ruling removes a very useful form of protection, which has been used by consumers in the past to obtain redress in situations where it would otherwise not have been available. We have had cases where consumers who had used their credit card to pay a deposit on a timeshare or holiday club, which they had bought while on holiday in Spain, had been able to claim back off the credit card company when they found on their return to Northern Ireland that the deal had been misrepresented to them, or their contract had been breached. It means that holiday makers in these situations will just have to be that little bit more careful in the future when entering onto contracts abroad." * Consumers who want further advice about this subject should contact Consumerline on 0845 600 6262.

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