2 Errors and Fraud in Credit Card Transactions Flashcards
What are the risks to the Issuing Banks (IB) in the transactions involving their credit card holders (CH) and merchants (M)?
Risk of nonpayment by CH
Slight risk of AB insolvency—can’t chargeback
Liability for unauthorized/fraudulent transactions
What are the risks to the Acquiring Banks (AB) in the transactions involving credit card holders (CH) and their merchants (M)?
Risk of the merchant not having money to pay a chargeback
(a) What are two main issues involving risk to both cardholders and banks within the context of credit card transaction?
(b) What should you analyze when you come across them?
(a) :
(1) Erroneous charges; &
(2) Unauthorized charges
(b) :
(1) Whether there was a billing error (§161);
(2) Whether TILA applies to the transaction, and if so, the extent of the liability covered?
(a) What type of transactions does the truth in lending act (TILA) generally apply to?
(b) Who generally isn’t covered under?
(c) What is the exception to the general rule for those generally not protected under TILA?
(a) TILA covers credit card transactions of consumer cardholders;
(b) TILA generally doesn’t apply to “credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes, or to government or governmental agencies or instrumentalities, or to organizations.”
(c) Nonconsumer transactions involving unauthorized use and fraud.
What is the statutory cap to the liability fo a credit card holder?
$50
What is a billing error?
Generally, it is a transaction where the CH didn’t authorize the charge (e.g., M didn’t deliver the goods, etc.)
See TILA §161 -
(b) Billing error. For the purpose of this section, a “billing error” consists of any of the following:
(1) A reflection on a statement of an extension of credit which was not made to the obligor or, if made, was not in the amount reflected on such statement.
(2) A reflection on a statement of an extension of credit for which the obligor requests additional clarification including documentary evidence thereof.
(3) A reflection on a statement of goods or services not accepted by the obligor or his designee or not delivered to the obligor or his designee in accordance with the agreement made at the time of a transaction.
(4) The creditor’s failure to reflect properly on a statement a payment made by the obligor or a credit issued to the obligor.
(5) A computation error or similar error of an accounting nature of the creditor on a statement.
(6) Failure to transmit the statement required under section 127(b) of this Act [15 USCS § 1637(b)] to the last address of the obligor which has been disclosed to the creditor, unless that address was furnished less than twenty days before the end of the billing cycle for which the statement is required.
(7) Any other error described in regulations of the Bureau.
True or false - a billing error cannot be challenged after the cardholder makes a payment?
False
What is the process for reporting billing errors?
- CH must provide written notice of the error to IB within 60 days of the date on which the creditor sent the statement with the billing error
- IB then must send written acknowledgement of the notice within 30 days and resolve the claim within two billing cycles, or provide written explanation for why the charge will stand
(a) What are unauthorized charges?
(b) How much can a CH be liable for before reporting an unauthorized charge?
(c) what is the exception to (b) above, meaning, when doesn’t the cardholder receive the liability protection?
(a) Unauthorized charges are charges made without consent of the CH
(b) CH can be liable for up to $50 in charges that occur before they report a card stolen
(c) Exception to the $50 limit when charges are made with apparent authority:
• Apparent authority can be implied from CH actions which suggest the charges are authorized:
o Paying the charges in full every month, or;
o Mostly paying the charges in full, and not disputing for a few months.
What is the scope of merchant liability in regards to unauthorized transactions?
Merchant liability:
• Ordinarily IB has risk of unauthorized charges, BUT in internet and phone transactions M takes on that risk under network rules.
• Under network rules, M also takes on that risk if they don’t require a signature in face to face transactions
What section of TILA applies to businesses and unauthorized transactions?
§135 makes unauthorized transaction provisions apply to business card transactions
Differences:
• Businesses with up to 10 EEs issued cards can contract to accept the risk of unauthorized transactions
• EE personal liability for unauthorized transactions is nonetheless limited to $50 each
