A. Erroneous Charges

Belmont v. Associates National Bank (Delaware)

B. Unauthorized Charges

Minskoff v. American Express Travel Related Services Co.

Problem Set 8

Problem Set 8

8.1. When Cliff Janeway returned to his home in Denver this weekend, he called to tell you that he has discovered that at the same time he lost the check last week in Seattle (see Problems 5.1) he also lost his Iridium MasterCard, which has a $20,000 limit. It now has been more than a week since he lost it. Does that give him anything new to worry about? TILA §§ 133, 170(a); 12 CFR § 226.12(b) & (c).

8.2. While he has you on the phone, Cliff tells you that he is about to start selling books by mail-order, in an effort to build volume for his business. He is worried about accepting payment by credit cards because the cardholders won’t be signing any slips. Does that mean the cardholders will have a greater right to get out of the transactions? TILA §§ 103(o), 133(a), 170, 12 CFR § 226.12(b) & (c).

8.3. Cliff's last question for you relates to a trip he had planned to take to London. Several weeks ago he bought tickets to fly to London on Great Atlantic Air. Yesterday, Great Atlantic Air stopped flying. This morning's paper reports that the assets of Great Atlantic Air are being liquidated in bankruptcy. Cliff purchased his ticket on his MasterCard. Can he get the money back? What do you need to know to answer Cliff’s question? TILA §§ 161, 170; 12 CFR §§ 226.12(c), 226.13.

8.4. Ben Darrow (your banker client from FSB) meets you for breakfast this morning to discuss a problem with some credit cards that FSB recently issued. As part of a general initiative to provide more services to small businesses, FSB has a program that provides credit cards for small businesses at low costs, with no annual fee and an interest rate that is two points lower than FSB’s standard rate. As part of the program, however, the cardholding small business must sign an agreement accepting responsibility for any unauthorized charges that are made with a stolen card.

Ben got in a dispute this week with Carol Long (one of the first people to sign up for the program) after a thief came through her offices at lunch and stole three of the five credit cards she has issued to her employees. Although Carol called Ben to report the theft by the end of the day, the thief already had charged about $500 on each of the three cards. Based on Carol’s agreement with Ben, Carol was not surprised to see the unauthorized charges on the statements for the employees. Because she had agreed to accept responsibility for those charges, she proposed to deduct them from the next paycheck due to each employee whose card was stolen. One of the employees, however, protested, arguing that Carol could not make him pay an unauthorized charge on the credit card. In response to that claim, Carol called Ben. She wants to know if the employee is right. Moreover, if the employee is right, she thinks that Ben should bear the charge, not her. What should Ben tell her? TILA §§ 133(a)(1), 135, 15 U.S.C. §§ 1643(a)(1), 1645; Regulation Z, 12 CFR § 226.12(b)(5).

8.5. While you are having dinner at the Drones Club one evening, Jeeves (Bertie Wooster’s valet) approaches your table to ask if you have time to talk to him about a problem that recently has come upon Bertie. The first problem involves Bertie’s Diner’s Club card. When Bertie tried to use the card to pay for lunch yesterday, the merchant refused to accept the card and asked Bertie if he would speak on the telephone to a representative of the issuer. The issuer advised Bertie that the card was not being honored because of Bertie’s failure to pay any of the bills for the last three months; the total amount outstanding on the card currently is about $4,500.

Bertie was shocked to hear this, because he only uses the card once or twice a month and can’t imagine that he would have declined to pay the bill. On further examination, it appears that the problem arose from a $40 charge that the issuer erroneously entered on Bertie’s statement as a charge for $4,000. Unfortunately, because Bertie neglected to send the credit-card issuer a notice of his new address when he moved three months ago, Bertie has not received the last three statements on that card (the first of which included the $4,000 entry).

When Bertie explained the problem to the issuer’s service representative, the representative referred Bertie to a provision of his card agreement that states: “Except to the extent otherwise required by applicable federal law, all entries that appear on any account statement produced by Issuer shall be final and conclusive evidence of Cardholder’s liability to pay Issuer, and Cardholder agrees to pay all such charges that Cardholder does not contest in accordance with the procedures established by applicable federal law.” Bertie wants to get the $4,000 charge removed from his credit card. What can he do? TILA § 161, 15 U.S.C. § 1666; Regulation Z, 12 CFR § 226.13(b)(1).

8.6. Before you leave the club, Bertie’s acquaintance Roderick Spode stops at your table to discuss a problem he has with his credit card. He asks if you recall an incident that happened a few weeks ago with Gussie Fink-Nottle (famed for his exploits in Problem 5.2), in which Spode’s negligence permitted Fink-Nottle to obtain one of Spode’s blank checks and issue the check fraudulently. As it happens, the checkbook from which Fink-Nottle took the blank check also contained one of Spode’s credit cards. Fink-Nottle used the credit card to obtain a $1,000 cash advance from Bulstrode Bank (the bank that issued the card).

Spode did not mention that problem to you at the time he came to discuss Problem 5.2, because Spode assumed that he would be able to recover those funds by challenging the appropriate entry on his credit-card bill. As it happens, however, Spode’s bank (Bulstrode) has not been successful at recovering the funds from Fink-Nottle (who appears to have left town indefinitely). Because Bulstrode cannot recover the funds from Fink-Nottle, Bulstrode is trying to obtain payment from Spode. Specifically, when Spode talked to Nicholas Bulstrode this morning, Bulstrode advised Spode that he planned to hold Spode responsible because (in Bulstrode’s words) “the whole problem is your fault. After all, you’re the one that was stupid enough to leave your credit card laying around where any moron could pick it up and make some false charges. There’s nothing that I could have done to prevent this, so I think you should pay.” Is Spode obligated to pay for the charge? What is Bulstrode’s best argument? UCC § 3-406(a); TILA § 133.

Assignment Update

No update is needed at this time.