(a) Issuance of credit cards. Regardless of
the purpose for which a credit card is to be used, including business,
commercial, or agricultural use, no credit card shall be issued to any
person except:
(1) In response to an oral or written request
or application for the card; or
(2) As a renewal of, or substitute for, an
accepted credit card.21
21 For purposes of this section, accepted credit card means any
credit card that a cardholder has requested or applied for and received,
or has signed, used, or authorized another person to use to obtain credit.
Any credit card issued as a renewal or substitute in accordance with this
paragraph becomes an accepted credit card when received by the cardholder.
(b) Liability of cardholder for unauthorized
use--(1) Limitation on amount. The liability of a cardholder for unauthorized
use22 of a credit card shall not exceed the lesser of $50 or
the amount of money, property, labor, or services obtained by the unauthorized
use before notification to the card issuer under paragraph (b)(3) of this
section.
22
Unauthorized use means the use of a credit card by a person, other than
the cardholder, who does not have actual, implied, or apparent authority
for such use, and from which the cardholder receives no benefit.
(2) Conditions of liability. A cardholder shall
be liable for unauthorized use of a credit card only if:
(i) The credit card is an accepted credit
card;
(ii) The card issuer has provided adequate
notice23 of the cardholder's maximum potential liability and
of means by which the card issuer may be notified of loss or theft of the
card. The notice shall state that the cardholder's liability shall not
exceed $50 (or any lesser amount) and that the cardholder may give oral
or written notification, and shall describe a means of notification (for
example, a telephone number, an address, or both); and
23
Adequate notice means a printed notice to a cardholder that sets forth
clearly the pertinent facts so that the cardholder may reasonably be expected
to have noticed it and understood its meaning. The notice may be given
by any means reasonably assuring receipt by the cardholder.
(iii) The card issuer has provided a means
to identify the cardholder on the account or the authorized user of the
card.
(3) Notification to card issuer. Notification
to a card issuer is given when steps have been taken as may be reasonably
required in the ordinary course of business to provide the card issuer
with the pertinent information about the loss, theft, or possible unauthorized
use of a credit card, regardless of whether any particular officer, employee,
or agent of the card issuer does, in fact, receive the information. Notification
may be given, at the option of the person giving it, in person, by telephone,
or in writing. Notification in writing is considered given at the time
of receipt or, whether or not received, at the expiration of the time ordinarily
required for transmission, whichever is earlier.
(4) Effect of other applicable law or agreement.
If state law or an agreement between a cardholder and the card issuer imposes
lesser liability than that provided in this paragraph, the lesser liability
shall govern.
(5) Business use of credit cards. If 10 or
more credit cards are issued by one card issuer for use by the employees
of an organization, this section does not prohibit the card issuer and
the organization from agreeing to liability for unauthorized use without
regard to this section. However, liability for unauthorized use may be
imposed on an employee of the organization, by either the card issuer or
the organization, only in accordance with this section.
(c) Right of cardholder to assert claims or
defenses against card issuer24--(1) General rule. When a person
who honors a credit card fails to resolve satisfactorily a dispute as to
property or services purchased with the credit card in a consumer credit
transaction, the cardholder may assert against the card issuer all claims
(other than tort claims) and defenses arising out of the transaction and
relating to the failure to resolve the dispute. The cardholder may withhold
payment up to the amount of credit outstanding for the property or services
that gave rise to the dispute and any finance or other charges imposed
on that amount.25
24
This paragraph does not apply to the use of a check guarantee card or a
debit card in connection with an overdraft credit plan, or to a check guarantee
card used in connection with cash advance checks.
25
The amount of the claim or defense that the cardholder may assert shall
not exceed the amount of credit outstanding for the disputed transaction
at the time the cardholder first notifies the card issuer or the person
honoring the credit card of the existence of the claim or defense. To determine
the amount of credit outstanding for purposes of this section, payments
and other credits shall be applied to: (1) Late charges in the order of
entry to the account; then to (2) finance charges in the order of entry
to the account; and then to (3) any other debits in the order of entry
to the account. If more than one item is included in a single extension
of credit, credits are to be distributed pro rata according to prices and
applicable taxes.
(2) Adverse credit reports prohibited. If,
in accordance with paragraph (c)(1) of this section, the cardholder withholds
payment of the amount of credit outstanding for the disputed transaction,
the card issuer shall not report that amount as delinquent until the dispute
is settled or judgment is rendered.
(3) Limitations. The rights stated in paragraphs
(c)(1) and (2) of this section apply only if:
(i) The cardholder has made a good faith attempt
to resolve the dispute with the person honoring the credit card; and
(ii) The amount of credit extended to obtain
the property or services that result in the assertion of the claim or defense
by the cardholder exceeds $50, and the disputed transaction occurred in
the same state as the cardholder's current designated address or, if not
within the same state, within 100 miles from that address.26
26
The limitations stated in paragraph (c)(3)(ii) of this section shall not
apply when the person honoring the credit card: (1) Is the same person
as the card issuer; (2) is controlled by the card issuer directly or indirectly;
(3) is under the direct or indirect control of a third person that also
directly or indirectly controls the card issuer; (4) controls the card
issuer directly or indirectly; (5) is a franchised dealer in the card issuer's
products or services; or (6) has obtained the order for the disputed transaction
through a mail solicitation made or participated in by the card issuer.
(d) Offsets by card issuer prohibited. (1)
A card issuer may not take any action, either before or after termination
of credit card privileges, to offset a cardholder's indebtedness arising
from a consumer credit transaction under the relevant credit card plan
against funds of the cardholder held on deposit with the card issuer.
(2) This paragraph does not alter or affect
the right of a card issuer acting under state or Federal law to do any
of the following with regard to funds of a cardholder held on deposit with
the card issuer if the same procedure is constitutionally available to
creditors generally: obtain or enforce a consensual security interest in
the funds; attach or otherwise levy upon the funds; or obtain or enforce
a court order relating to the funds.
(3) This paragraph does not prohibit a plan,
if authorized in writing by the cardholder, under which the card issuer
may periodically deduct all or part of the cardholder's credit card debt
from a deposit account held with the card issuer (subject to the limitations
in Sec. 226.13(d)(1)).
(e) Prompt notification of returns and crediting
of refunds. (1) When a creditor other than the card issuer accepts the
return of property or forgives a debt for services that is to be reflected
as a credit to the consumer's credit card account, that creditor shall,
within 7 business days from accepting the return or forgiving the debt,
transmit a credit statement to the card issuer through the card issuer's
normal channels for credit statements.
(2) The card issuer shall, within 3 business
days from receipt of a credit statement, credit the consumer's account
with the amount of the refund.
(3) If a creditor other than a card issuer
routinely gives cash refunds to consumers paying in cash, the creditor
shall also give credit or cash refunds to consumers using credit cards,
unless it discloses at the time the transaction is consummated that credit
or cash refunds for returns are not given. This section does not require
refunds for returns nor does it prohibit refunds in kind.
(f) Discounts; tie-in arrangements. No card
issuer may, by contract or otherwise:
(1) Prohibit any person who honors a credit
card from offering a discount to a consumer to induce the consumer to pay
by cash, check, or similar means rather than by use of a credit card or
its underlying account for the purchase of property or services; or
(2) Require any person who honors the card
issuer's credit card to open or maintain any account or obtain any other
service not essential to the operation of the credit card plan from the
card issuer or any other person, as a condition of participation in a credit
card plan. If maintenance of an account for clearing purposes is determined
to be essential to the operation of the credit card plan, it may be required
only if no service charges or minimum balance requirements are imposed.
(g) Relation to Electronic Fund Transfer Act
and Regulation E. For guidance on whether Regulation Z or Regulation E
applies in instances involving both credit and electronic fund transfer
aspects, refer to Regulation E, 12 CFR 205.5(c) regarding issuance and
205.6(d) regarding liability for unauthorized use. On matters other than
issuance and liability, this section applies to the credit aspects of combined
credit/electronic fund transfer transactions, as applicable.
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
