Problem Set 7
7.1. Ben Darrow (your
client, a banker from FSB) stopped by late yesterday afternoon to show
you a “bizarre” letter that he received in the mail yesterday. He
mentions that because of a recent consolidation he now oversees his
bank’s credit-card issuing operations, even though he has little
experience in the area. The letter is from one of FSB’s cardholders and
describes a $475 mountain bike that the cardholder recently purchased
using an FSB Visa card. The letter explains that the bike’s
gear-shifting mechanism does not function properly and asks FSB to
“refund” to the customer the amount shown on the customer’s current Visa
statement for the purchase of the bike. The letter encloses payment for
$100 (the amount of the other charges shown on the statement).
Ben tells you that he is completely befuddled. “Why should I care
whether the stupid bike works? If she doesn’t like it, let her take it
up with the merchant. My only job is to make sure I pay the merchant for
her charges and then to make sure that she pays me. What does she think
I am, some kind of traveling Better Business Bureau? Can you believe the
nerve of some people?” Do you share Ben’s assessment of the “nerve” of
the letter-writer? Is the writer entitled to a refund? To anything? Do
you need to know anything about the charges on her statement to
ascertain Ben’s obligations to her? TILA § 170; Regulation Z, §
226.12(c).
7.2. After your discussion with Ben in Problem 7.1, Ben asks
you how he would be able to respond to the cardholder’s defenses in
cases where the cardholder could assert those defenses. “How am I
supposed to prove that her mountain bike works? I don’t sell mountain
bikes. I drive a car to work. I haven’t ridden a bicycle since I was 15
years old. Do I just have to give her the money?” What do you tell Ben?
7.3. Jodi Kay from CountryBank calls to discuss a troubling
newspaper article that she read in this morning’s paper. The article
reports that a client of hers named CompUPlus recently filed for
bankruptcy in the face of rampant consumer complaints about CompUPlus’s
newest line of laptop computers. Jodi thinks that she is in good shape,
because (she says) she has never made any loans to the client. The only
service that she has provided has been as a merchant bank processing
CompUPlus’s mail-order credit-card sales. Those sales recently have been
substantial: $150,000 over the last three months. Does that relationship
put her employer CountryBank at risk? TILA § 170; Regulation Z, § 226.12(c).
7.4. Your friend Willie McCarver runs a struggling
computer-services company. Talking to you over dinner, Willie tells you
that he has gotten into a tight spot with some of his most important
suppliers. If he does not pay them $10,000 in the next week, they are
going to stop shipping goods to him, which would finish his business in
a matter of days. Willie thinks that some highly profitable orders are
“just around the corner.” In the meantime, he thinks that he has hit on
a way to keep his suppliers satisfied and wants your advice.
Specifically, he plans to use the MasterCard to pay the suppliers
$10,000 to reduce the amount that he owes for past shipments; the card
that he received in the mail conveniently has a $10,000 limit. Mindful
of some advice you gave him several years ago about his rights on
credit-card charges, he figures that he can dispute the charges (perhaps
claiming that the goods were defective) and defer payment to the
credit-card issuer indefinitely. He wants to know if you think the
scheme will work and how he can design it to hold off the creditors as
long as possible. TILA §§ 104(1), 170; Regulation Z, §§ 226.12(c).
7.5. Cliff Janeway drops in to discuss a difficulty he is
having with Bulstrode Bank, the acquirer that clears credit-card
transactions for him. Cliff found out this morning that Bulstrode has
bounced several checks of Cliff’s during the last week. Cliff is unhappy
because the checks should have been covered easily by funds deposited
into his account several days earlier in the form of credit-card
receivables from his business. When Cliff called Bulstrode to complain,
Bulstrode explained that it had adopted a new policy with respect to
credit-card services. Under that policy, Bulstrode plans to place a hold
on Cliff’s credit-card deposits for forty-five days after the date that
Cliff deposited them, to protect against the possibility that Bulstrode
will be obligated to disgorge funds to card issuers if cardholders
challenge any of the relevant transactions. Cliff wants to know if the
bank can do this. “Isn’t there some law requiring the bank to release
the funds to me in just a few days?” UCC §§ 4-104(a)(9), 4-214(a),
4-215(e); Regulation CC, §§ 229.10-.12; TILA § 170, Regulation Z, § 226.12(c).
7.6. Your congressional representative Pamela Herring recently
got involved in a credit-card dispute with a mail-order merchandiser and
was outraged to discover that she could not cancel the transaction
because of the 100-mile limit in TILA § 170. She decided to look into
introducing a bill to eliminate that limit. Shortly after she started
investigating that problem, a similarly outraged constituent telecopied
her the following excerpt from a recent Nevada Supreme Court decision:
[A]ppellants present policy arguments as to why they should be excused
from th[e 100-mile] requirement. Appellants argue that the one hundred
mile requirement is unrealistic because an explosion in credit card use
has occurred since [TILA § 170] was written. Appellants further complain
that if the one hundred mile limit is enforced, an unscrupulous merchant
could defraud travelers almost at will, secure in the knowledge that it
is unlikely that the traveler would return to a remote location to press
a claim against the merchant. Finally, appellants note that the credit
card issuer, because of its regular contact with both the merchant and
the cardholder, is in the best position to prevent problems such as
those which occurred in this case.
Singer v. Chase Manhattan Bank, 890 P.2d 1305, 1306 (Nev. 1995). She
wants to know two things. (a) Is there anything to be said for the
100-mile limit? (b) Who would be most seriously harmed by its removal?
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