Steiner Case No Save Haven For Card Issuers, Acquirers, Processors or Merchants

I have a real problem with the facts and ultimate outcome for the cardholder in the recent case of Steiner v National Westminster Bank plc [2022] EWHC 2519 (KB) decided in October. I make no criticism of the lawyers or judge involved, but those in the payment card business should not see it as setting up any kind of safe haven. 

In essence, the court absolved a credit card issuer from liability for the price of a timeshare deal under section 75 of the Consumer Credit Act because the supplier of the timeshare ('CLC') was found not to be a party to the credit card 'arrangements'. Instead, those arrangements were found only to involve a separate company ('FNTC') that was not part of the same corporate group as CLC and was acting as a trustee and not as agent for CLC. 

Unfortunately, it seems the Mastercard rules were not fully explored, as the judge held:

13. Equally, there was no evidence before me as to the rules of the Mastercard network, but it was not suggested that they prohibited a merchant who was a member of the scheme from receiving payment under the scheme as trustee or agent for another.

However, the Mastercard rules effectively require that acquirers, merchants and sub-merchants (and the intermediate 'Payment Facilitator') must be party to the overall scheme arrangements, and it would be a breach of those rules if that were not the case (see Chapters 5 and 7). 

In addition, it appears that as a separate company and a trustee, FNTC was not lawfully able to handle funds due to CLC under the Payment Services Regulations 2017. There is no evidence that FNTC was a payment institution (or small payment institution) or the agent of one; and as a separate company and trustee it could not benefit from any of the exclusions from the need for authorisation/registration as a payment institution, the most common in such scenarios being the exclusion for a commercial agent or a group company collecting or making payments on behalf of other companies in the same group. 

In this specific case, there may have been good reasons why the Mastercard rules were not explored and/or the card acquirer, FNTC and CLC were not joined as defendants and subject to a barrage of claims and remedies to recover the funds (assuming that the card issuer could not have known of the apparent breach of scheme rules and FNTC's apparently unlawful conduct). There may have been shortcomings in the evidence or other issues involved in mounting the potential legal claims and remedies - not the least of which would be the necessary financial resources.

But I do not see this case as a reliable basis for anyone to start setting up trustees as payment processors in an attempt to avoid liability under supply contracts, card scheme rules, Payment Services Regulations and/or section 75 of the Consumer Credit Act!