Unauthorized Use: The So-Called $50 Rule: 15 USC 1643

Identity Theft, Account Takeover, Unauthorized Use, Misuse, Apparent Authority, Authorized Use.
David A. Szwak

Unauthorized Use: The So-Called $50 Rule: 15 USC 1643

Postby David A. Szwak » Mon Oct 17, 2005 8:13 pm

CARDHOLDER'S LIABILITY FOR UNAUTHORIZED USE:

There is no liability for unauthorized use of a credit card, except where card is an "accepted credit card" then liability is not in excess of $50.00 and $50.00 is due only when: (1) the issuer provides the cardholder with adequate notice of the limited liability, (2) the issuer provides the cardholder with a description of means by which the issuer may be notified of the loss or theft of the activated card, (3) unauthorized use occurs before the card issuer has been notified that cardholder no longer possesses the card or template, and (4) card issuer provided a method whereby the user of such card can be identified as a person authorized to use it. 15 U.S.C. 1643(a)(1); Fifth Third Bank/Visa v. Gilbert, 478 N.E.2d 1324 (Ohio App. 1984).

The $50 Rule is the biggest fraud in the TILA statute. No lender ever complies with it and no lender is ever entitled to collect the $50.

David A. Szwak

Postby David A. Szwak » Tue Nov 01, 2005 5:09 am

15 USC 1643, Reg. Z, 12 CFR 226.12

“The 1970 amendments to the Federal Consumer Protection Act, Pub. L. No. 91-508, 94 Stat.182 [codified as amended at 15 U.S.C. 1643 [1994]], [hereinafter FCPA] and the Electronic Funds Transfer Act of 1978, Pub. L. No. 95-630, 92 Stat. 3728 [codified at 15 U.S.C. 1693 to 1693r [1994]], [hereinafter EFT Act] contain provisions that invariably preclude banks and credit card companies from charging consumers for fraudulent credit and debit card charges.” 15 JMARJCIL 39.

David A. Szwak

Postby David A. Szwak » Tue Nov 01, 2005 5:10 am

“The credit card fraud section of the FCPA provides that a cardholder shall be liable for unauthorized credit card use only if: the card holder has accepted the card; the liability does not exceed fifty dollars; the card issuer gives the card holder notice of the potential liability; the issuer provides the cardholder with a description of the means by which the cardholder can notify the issuer of loss or theft of the card; the unauthorized use occurs before the card holder has notified the issuer of the loss or theft; and the issuer has provided a method by which the cardholder can be identified as the person authorized to use the card. 15 U.S.C. 1643. If a credit card holder asserts that a charge was unauthorized, the burden of proof is on the card issuer to show that each of these conditions has been met. 1643[b]. The same rules are restated in 12 C.F.R. 226.12[b] [1995] While the statute allows card issuers to impose liability up to fifty dollars, this is rarely attempted by lenders; thus this federal statute effectively eliminates cardholder liability for unauthorized use. [Clark & Clark, supra note 13, P15.03[2][a] at 15-21. Many banks, apparently for customer relations reasons, do not attempt to assess the $50 limited liability charge authorized by 15 U.S.C. s 1643. Id. Reported cases suggest that banks may only attempt to enforce liability against a cardholder where there is an issue of real or apparent authority given by the cardholder to another to use his or her credit card. Id. at 15-21 to 15-23.] If credit card data is stolen when used over the Internet, that data is an "unauthorized use" as defined by 15 U.S.C. s 1602[o] because the user will have no "actual, implied, or apparent authority for such use ...." Id.” 15 JMARJCIL 39.


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