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Truth in Lending: 7.10.2.3 Is a User an Authorized User?

Whether a person has actual, implied, or apparent authority to use the card is a question of state law.1244 The card issuer has the burden of proving that the user had actual, implied, or apparent authority and that the conditions for imposing liability on the cardholder have been met.1245 Apparent authority must be proven through actions of the principal, not those of the supposed agent.1246

Truth in Lending: 7.10.3 Cardholder Cannot “Benefit” from Unauthorized Use

Unfortunately, the definition of unauthorized use leaves the cardholder open to merchant fraud. If the cardholder receives some benefit from the use of the card, even if the use is not authorized, it is not an “unauthorized use” under the definition.1263 For instance, some state statutes prohibit a car repairer from charging for work which exceeds an estimate without specific consent.1264 The garage may take an impression of a credit card before beginning work on the vehicle.

Truth in Lending: 7.10.5 Cardholder Notice to Card Issuer of Unauthorized Use

The cardholder or any other person may give the card issuer notice of the loss, theft, or possible unauthorized use of the credit card.1285 Once notice is given, the customer’s liability for unauthorized use is frozen at the amount of unauthorized use, or $50, whichever is less.1286 The notice also requires the card issuer to initiate certain investigative and other procedures.1287 Giving notice of the unauthorized use to the card issuer is n

Truth in Lending: 7.10.6 Investigation Procedures

Because unauthorized use is a type of billing error,1295 the creditor must attempt to resolve the dispute.1296 Even when the consumer has not met the requirements of FCBA’s billing error notice requirements, the creditor is required to conduct a “reasonable” investigation of an unauthorized use claim.1297

Truth in Lending: 7.10.7 Resolution; Adverse Credit Reports

The resolution process for an unauthorized use report is that used for a billing error, which is discussed in detail at §§ 7.9.6–7.9.8, supra.1313 A creditor violated these requirements by sending the consumer only a cursory, ambiguous and incomplete statement about its justifications for concluding that the consumer was liable for the use of the card.

Truth in Lending: 7.11.1 General

Credit cards are exempted from the Federal Trade Commission “Holder Rule,” which makes certain creditors liable for the consumer’s seller-related claims and defenses.1338 Instead, TILA provides a parallel right for cardholders to raise seller-related claims against the card issuer.

Truth in Lending: 7.11.2 When Is a Credit Card Issuer Subject to Claims and Defenses?

The right to assert claims and defenses only applies to consumer accounts.1350 However, a consumer can use the right to dispute a business purpose transaction, so long as the account itself is a consumer account.1351 The official interpretations make clear that when a consumer-purpose credit card is issued, all of the provisions of Regulation Z apply, even to occasional extensions of credit for business purposes made using that consumer-purpose credit card.

Truth in Lending: 7.11.3 Types of Actionable Claims and Defenses

The claims or defenses must have to do with the property or services purchased from the merchant with the credit card.1361 The claims and defenses may include unauthorized use of the card as well as claims which can be asserted under billing error procedures.1362 Nondelivery can be asserted as a billing error or as a claim or defense.1363 A dispute as to the quality of the merchandise can be asserted only as a claim or defense, since it is no

Truth in Lending: 7.11.4 Preconditions for Cardholder Asserting Claims or Defenses

There are three conditions which must be met before a consumer who has used a credit card can assert claims or defenses as to the merchant against the card issuer. The cardholder must have made a good faith attempt to resolve the matter with the merchant.1368 Whether this has been done is a question of fact. No particular procedures are mandated.1369 The consumer does not have to go beyond the merchant to the manufacturer.

Truth in Lending: 7.11.5 Relationship to Bill Error Disputes and Claims of Unauthorized Use

As noted earlier,1386 some types of claims and defenses which a consumer might raise may be asserted as a billing error as well, such as non-delivery.1387 Disputes about nonconforming goods can fall under both the section 1026.12(c)’s claims and defenses procedures and section 1026.13’s billing error procedures, but only if the consumer did not accept the goods or services.1388 Disputes about the quality of goods and services that the consume

Truth in Lending: 7.11.6 Nature of the Consumer’s Rights to Withhold Payment

The claims and defenses provision is not designed to actually resolve the underlying dispute. Like the FTC’s Holder Rule,1393 it is aimed at preserving the consumer’s right to assert claims and defenses against the merchant. That dispute ultimately must be determined under state or other applicable law.1394 As a practical matter, when the consumer invokes the claims and defenses procedure, the card issuer that accepts the consumer’s claim can then charge the amount back to the merchant.

Truth in Lending: 7.11.7 Adverse Credit Reports; Collection Activity

As with the billing error procedure, a card issuer cannot make an adverse credit report based on the consumer’s withholding payment in accordance with these claims and defenses procedures “until the dispute is settled or judgment rendered,”1399 though it may report the amount as disputed.1400 Adverse credit reporting would include notations that the amount is delinquent,1401 and should include other derogatory notations, such as reporting tha

Truth in Lending: 7.12.1.1 Introduction

A credit card issuer may not issue a credit card, except in response to an explicit oral or written request or application for the card from a consumer or business (or when renewing a card which the customer has already accepted).1406 The prohibition against unsolicited issuance of a credit card was added to TILA in 1970,1407 after numerous problems were reported due to the proliferation of unsolicited credit cards.1408 TILA statutory damages

Truth in Lending: 7.12.1.2 Conforming Requests for a Credit Card

The request must be for a credit card; a request for some other form of credit does not allow the creditor to issue a credit card.1411 With exception of requests by consumers under twenty-one years of age,1412 the request need not be made in writing, but can be made orally1413 or electronically.1414 Indeed, the vast majority of applications for credit cards are now made electronically.

Fair Debt Collection: 2.2.1 Strategy for Initial Interview

An initial interview with a prospective client who has been subjected to debt collection harassment may be lengthy. After debt collection contacts are identified as a core legal problem, all available documents must be gathered, the validity of the debt should be examined, damages ascertained, and the availability of witnesses explored. Only then is the lawyer in a position to assess the case properly, chart future action, and counsel the client. As a result, an initial interview may last an hour or longer.

Fair Debt Collection: 2.2.2 Questions to Uncover Damages

Once a sequence of events has been developed, the client should be instructed to describe fully the events during and after each harassing contact.6 Probing questions should be asked to identify corroborating witnesses to the contacts and damages and to determine the availability of documentary evidence, such as dunning letters and their envelopes, and telephone, pharmacy, and doctor’s bills.

Fair Debt Collection: 2.2.3 Examining the Validity of the Debt

After developing a chronology of collection contacts, details of each contact, and names, addresses, and telephone numbers of witnesses, the interviewer should examine the validity of the debt and possible defenses to its collection in appropriate cases.11 This inquiry may uncover a defense to the client’s liability, and also serves to assess the strength of the collection harassment claim.

Fair Debt Collection: 2.2.5 Careful Case Selection

Lawyers considering handling a fair debt collection case should proceed carefully after interviewing potential consumer clients. Many debt collectors and judges will closely examine the consumer’s background and conduct, and the consumer’s lawyer should not be surprised in that regard. Are there sufficient incontrovertible facts, or is further investigation required to assess the strength of the case being considered?

Fair Debt Collection: 2.2.6 Developing a Plaintiffs’ Fair Debt Collection Practice

There are a number of ways to develop a plaintiffs’ fair debt collection law practice. Touch base with the members of the National Association of Consumer Advocates (NACA)33 in the area to talk about the pros and cons of that practice locally. They are likely to be a source of referrals or co-counseling. Explore client referral relationships with consumer bankruptcy attorneys when they send you their bankruptcy client’s fair debt collection claims.34 Join legal services and bar referral panels.

Fair Debt Collection: 2.4.1 Overview

Consumer attorneys can help solve their clients’ distress from debt collection abuses without committing the full legal resources required for a lawsuit or bankruptcy. Whether strategies short of suit are appropriate in any given situation depends upon the client’s objectives, the nature of the abuse (for example, whether the harassment is aberrant or routine for that collector), the damages suffered, and issues of efficiency (for example, litigation provides greater deterrence).