Connected lender liability: a narrower construction of “arrangements” under the Consumer Credit Act 1974

On 10 October 2022, the High Court handed down judgment in an important case which looked at the meaning of “arrangements” in section 12(b) of the Consumer Credit Act 1974 (the CCA) in a scenario where the party receiving the credit card payment was different to the contractual supplier of the underlying goods or services. This decision is good news for credit card providers facing claims and complaints based on sections 56 and 75 of the CCA where the recipient of the payment is different to the supplier.

In this insight, we analyse the key impact of the decision in Steiner v National Westminster Bank PLC [2022] EWHC 2519 (KB).

The facts in Steiner

The High Court judgment was an appeal against the first instance decision of HHJ Freedman on a preliminary issue of law as to whether there was a debtor-creditor-supplier agreement (DCS agreement) between a credit card holder, Mr Steiner, and the credit card issuer, National Westminster Bank PLC (the Card Issuer). The claim was brought by Mr Steiner’s personal representative, Ms Steiner.

The key facts were as follows:

• On 27 April 2004, Mr and Ms Steiner entered into an agreement with Club La Costa Vacation Club Ltd (CLC) to purchase from CLC the right to participate in a timeshare scheme for £14,000.
• Mr Steiner paid the purchase price using his Mastercard credit card provided by the Card Issuer. The key point, however, is that this payment was made to a company called First National Trustee Company Limited (FNTC). FNTC was the merchant of record and the entity which was a party to the Mastercard scheme via an acquirer.
• CLC was regarded by the Court as the supplier under the CCA, even though it was not the party which received the credit card payment directly (that was FNTC under the card scheme arrangements).
• FNTC was the trustee under a Deed of Trust, with CLC being the “Association” under the Trust. FNTC was appointed as the trustee by CLC and the founding member.
• Ms Steiner accepted that CLC and FNTC were two separate entities and that FNTC was not CLC’s agent.
• The Card Issuer accepted that when the payments were made to FNTC, FNTC was obliged to pass them on to CLC.

Ms Steiner brought a claim against the Card Issuer, relying on sections 56, 75 and 140A – C of the CCA. In order for sections 56 and 75 to be engaged, there has to be a DCS agreement. A DCS agreement is defined under section 12(b) of the CCA as:

“a regulated consumer credit agreement being -…(b) a restricted-use credit agreement which falls within section(11)(1)(b) and is made by the creditor under pre-existing arrangements, or in contemplation of future arrangements, between himself and the supplier,… ”

Section 11(1)(b) of the CCA defines a restricted-use credit agreement as a regulated consumer credit agreement to:

“…finance a transaction between the debtor and a person (the “supplier”) other than the creditor,”

The Card Issuer said that there was no DCS agreement because the payment was made to a third party, FNTC, who was not the supplier under the CCA. The Card Issuer said that they only had “arrangements” with FNTC because FNTC was the merchant who was entitled to accept payments under the Mastercard network scheme through the acquirer. But FNTC was not the supplier under s.12(1)(b) of the CCA; CLC was the supplier under this provision – and the Card Issuer said they had no such “arrangements” with CLC.

The preliminary issues trial

The issue was considered as a preliminary issue at trial in September 2021. HHJ Freeman found in favour of the Card Issuer. He held that there was no proper basis to extend the notion of “arrangements” to a party who is not directly in receipt of monies paid over by the debtor.

The appeal judgment by Mr Justice Lavender

Ms Steiner appealed this decision and argued that the definition of “arrangements” was broad enough to include an arrangement whereby there was a clear inference that the “beneficiary” of a trust (CLC) would in due course receive the relevant transaction monies (i.e. when it was paid over by the trustee).

The Card Issuer argued that, in reality, there were two separate “arrangements”: one pursuant to the Mastercard network and the other with the Deed of Trust; they argued that those two arrangements could not be seen as jointly forming “arrangements” between the Card Issuer and CLC.

Mr Justice Lavender preferred the Card Issuer’s submissions and upheld HHJ Freeman’s judgment. He considered in detail the Office Fair Trading v Lloyds TSB Bank Plc (both the High Court and Court of Appeal decisions, which were relevant on the issue of whether there was an arrangement in a four-party payment structure), and Bank of Scotland v Alfred Truman [2005] EWHC 583 QB (which dealt with an instance of agency). In summary, and of particular note:

• The Judge considered that a significant feature of the factual scenario addressed in Office of Fair Trading v Lloyds was that the parties in that case were all subject to the same network (Mastercard). That network constituted “arrangements” between its members.
• The Judge didn’t regard the Bank of Scotland v Alfred Truman [2005] EWHC 583 QB case as being of much assistance; that case left open the question of where the line was to be drawn on the issue of arrangements (and it was deciding before the Court of Appeal judgment in OFT).
• The Judge preferred a more restrictive interpretation of arrangements and held at paragraph 63:

“…The natural and ordinary meaning of the words used in section 12(b) of the Act does not extend to saying that [the Card Issuer] made its agreement with Mr Steiner under both the Mastercard network and the Trust Deed (or under both the Mastercard network and any other arrangements which parties to the Mastercard network might have with third parties).”

What’s the impact of this judgment on card issuers?

Credit Card providers will welcome this judgment. Firstly, in factually similar scenarios where there are trust structures, like in timeshare cases, it is authority that there will not (normally) be the necessary “arrangements” for sections 56 and 75 of the CCA to bite.

But the judgment potentially has a wider impact. The underlying reasoning is also likely to be applicable to card issuers facing section 75 claims where there was a payment facilitator or aggregator involved in the payment chain. Card issuers will no doubt point to this judgment in support of their arguments against a wider interpretation of “arrangements”.