The judges unanimously overturned a High Court ruling in favour of card companies that refused to indemnify against foreign losses.

Yesterday’s decision by Lord Justice Waller, Lady Justice Smith and Lord Justice Moore-Bick was a victory for the Office of Fair Trading, which had taken on the banks and credit card companies to ensure safeguards for people making purchases abroad. But the card companies have given warning that they could end up becoming “the insurers of some 29 million foreign suppliers”.

With most people paying hotel bills by credit card, the companies say, they would become insurers, for no premiums, of the performance of most of the hotels in the world.They say that they will be at risk of a flood of claims whose merits they cannot assess, and be held liable for credit card purchases over the internet from fraudulent suppliers.

In 2004 Mrs Justice Gloster ruled in the High Court that purely foreign transactions were not covered by English law. She rejected the OFT’s case against three representative companies: Lloyds TSB, Tesco Personal Finance (part of the Royal Bank of Scotland group) and American Express Services, Europe.

Yesterday the Court of Appeal overturned her ruling and said that Section 75 of the Consumer Credit Act did apply to overseas transactions. Lord Justice Waller said it was the judges’ view that Parliament had intended that no distinction be drawn between transactions in Britain and abroad.

The judges could find nothing in the Act or in other legislation to confine the protection to consumers in Britain.

Lord Justice Waller said: “The argument that creditors will often face practical difficulties in seeking to enforce claims against foreign suppliers is one that must be taken seriously, but the problems are not in our view so great that Parliament can be presumed to have intended to exclude foreign transactions.”

Mike Naylor, of Which? magazine, said: “This is great news. It means the UK cardholders are protected if something goes wrong with the purchases they make anywhere in the world.”

He added that the ruling confirmed the publication’s view that credit card companies were jointly liable with retailers under Section 75 of the Consumer Credit Act for breach of contract or misrepresentation.

The ruling would apply to purchases of between £100 and £30,000, where “someone goes out of business, for example, or goods are not as described”.

At present most card companies pick up the bill for rogue purchases in Britain of between £100 and £30,000.

The court was told that the issue could have wide implications: it could cover loans taken out abroad — for example, for overseas timeshare purchases. There was also the question raised by Amex over whether companies based abroad that operated in Britain were subject to British legislation.

The companies were refused leave to appeal to the Lords but may go directly to them to ask for the ruling to be overturned.

FOREIGN EXCHANGE