A ruling giving UK consumers protection when purchasing goods from overseas by credit card has been described as “good news” by watchdogs.

The decision by the House of Lords clears up "uncertainty" surrounding consumer rights when using credit cards abroad, according to the Office of Fair Trading (OFT).

Sandra Quinn, a representative for Apacs, said the ruling was something the UK payments association had “been seeking for a number of years”.

The ruling means consumers will continue to be covered under section 75 of the Consumer Credit Act 1974 when purchasing items abroad, or from a website based outside the UK.

They will be covered for purchases above £100 and up to £30,000 if a seller fails to honour a contract, the item is faulty or if the supplier goes out of business.

The decision has also put an end to an ongoing dispute between the banks and the OFT. The dispute had been raging since 2001 after banks disputed the need to provide protection for overseas transactions, saying this effectively "turned them into insurers".

The court took this into consideration and in 2004 ruled in the banks' favour, deciding that consumers would not be covered on overseas transactions. This decision was then overturned in March 2006 when the OFT took the case to the Court of Appeal.

In October this year Lloyds TSB and Tesco Personal Finance once again appealed to the House of Lords to overturn the Court of Appeal judgment. This appeal has now been rejected.

John Fingleton, chief executive at the OFT, said: “We are pleased that the House of Lords has resolved the issue", adding that "the application of Section 75 to overseas credit card purchases has long been uncertain, which is unsatisfactory for UK consumers”.

Sandra Quinn of Apacs said: “From a customer’s point of view, this decision means no change as card companies had been meeting valid overseas claims."

However, she warned that the banking industry would need to consider the implications and the impact the ruling would have on individual businesses.

When contacted by Computeractive, Lloyds TSB said it was “disappointed” with the ruling. However, it said it would continue its "policy of paying valid claims for overseas transactions”.

Tesco Personal Finance agreed, saying: "Since the Court of Appeal's judgment in March 2006, we have honoured all valid claims regardless of whether they relate to UK or overseas transactions.

"We shall continue to operate this policy in light of the House of Lords' judgment," a representative told Computeractive.

Both banks also allayed fears that they could take the case to the European Court of Justice. A spokesperson for Tesco Personal Finance told Computeractive that " there will be no further action taken".