(a) Issuance of credit cards. Regardless of the purpose for which a credit card is to be used,
including business, commercial, or agricultural use, no credit card
shall be issued to any person except:
(1) In response to an oral or written
request or application for the card; or
(2) As a renewal of, or substitute for,
an accepted credit card.
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(b) Liability of cardholder for unauthorized use.
(1) (i) Definition of unauthorized use. For purposes
of this section, the term “unauthorized use” means the use of a credit
card by a person, other than the cardholder, who does not have actual,
implied, or apparent authority for such use, and from which the cardholder
receives no benefit.
(ii) Limitation on amount. The liability of
a cardholder for unauthorized use of a credit card shall not exceed
the lesser of $50 or the amount of money, property, labor, or services
obtained by the unauthorized use before notification to the card issuer
under paragraph (b)(3) of this section.
(2) Conditions
of liability. A cardholder shall be liable for unauthorized use
of a credit card only if:
(i) The credit card is an accepted credit
card;
(ii) The card issuer has
provided adequate notice of the cardholder’s maximum potential liability
and of means by which the card issuer may be notified of loss or theft
of the card. The notice shall state that the cardholder’s liability
shall not exceed $50 (or any lesser amount) and that the cardholder
may give oral or written notification, and shall describe a means
of notification (for example, a telephone number, an address, or both);
and
(iii) The card issuer has
provided a means to identify the cardholder on the account or the authorized
user of the card.
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(3) Notification to card issuer. Notification
to a card issuer is given when steps have been taken as may be reasonably
required in the ordinary course of business to provide the card issuer
with the pertinent information about the loss, theft, or possible
unauthorized use of a credit card, regardless of whether any particular
officer, employee, or agent of the card issuer does, in fact, receive
the information. Notification may be given, at the option of the person
giving it, in person, by telephone, or in writing. Notification in
writing is considered given at the time of receipt or, whether or
not received, at the expiration of the time ordinarily required for
transmission, whichever is earlier.
(4) Effect of other applicable law or agreement. If state law or an agreement between a cardholder and the card issuer
imposes lesser liability than that provided in this paragraph, the
lesser liability shall govern.
(5) Business use of credit cards. If 10 or
more credit cards are issued by one card issuer for use by the employees
of an organization, this section does not prohibit the card issuer
and the organization from agreeing to liability for unauthorized use
without regard to this section. However, liability for unauthorized
use may be imposed on an employee of the organization, by either the
card issuer or the organization, only in accordance with this section.
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(c) Right of cardholder to assert claims
or defenses against card issuer.
(1) General rule. When a person who honors a credit card fails to resolve satisfactorily
a dispute as to property or services purchased with the credit card
in a consumer credit transaction, the cardholder may assert against
the card issuer all claims (other than tort claims) and defenses arising
out of the transaction and relating to the failure to resolve the
dispute. The cardholder may withhold payment up to the amount of credit
outstanding for the property or services that gave rise to the dispute
and any finance or other charges imposed on that amount.
(2) Adverse credit
reports prohibited. If, in accordance with paragraph (c)(1) of
this section, the cardholder withholds payment of the amount of credit
outstanding for the disputed transaction, the card issuer shall not
report that amount as delinquent until the dispute is settled or judgment
is rendered.
(3) Limitations.
(i) General. The rights stated in paragraphs (c)(1) and (c)(2) of this section
apply only if:
(A) The
cardholder has made a good faith attempt to resolve the dispute with
the person honoring the credit card; and
(B) The amount of credit extended to obtain the property or services
that result in the assertion of the claim or defense by the cardholder
exceeds $50, and the disputed transaction occurred in the same state
as the cardholder’s current designated address or, if not within the
same state, within 100 miles from that address.
(ii) Exclusion. The limitations stated in paragraph (c)(3)(i)(B) of this section
shall not apply when the person honoring the credit card:
(A) Is the same person as the card issuer;
(B) Is controlled by the card issuer
directly or indirectly;
(C) Is under
the direct or indirect control of a third person that also directly
or indirectly controls the card issuer;
(D) Controls the card issuer directly or indirectly;
(E) Is a franchised dealer in the card issuer’s
products or services; or
(F) Has obtained
the order for the disputed transaction through a mail solicitation
made or participated in by the card issuer.
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(d) Offsets by card issuer prohibited.
(1) General rule. A card issuer may not take any action, either
before or after termination of credit card privileges, to offset a
cardholder’s indebtedness arising from a consumer credit transaction
under the relevant credit card plan against funds of the cardholder
held on deposit with the card issuer.
(2) Rights of the card issuer. This
paragraph (d) does not alter or affect the right of a card issuer
acting under state or Federal law to do any of the following with
regard to funds of a cardholder held on deposit with the card issuer
if the same procedure is constitutionally available to creditors generally:
Obtain or enforce a consensual security interest in the funds; attach
or otherwise levy upon the funds; or obtain or enforce a court order
relating to the funds.
(3) Periodic deductions.
(i) This paragraph (d) does not prohibit
a plan, if authorized in writing by the cardholder, under which the
card issuer may periodically deduct all or part of the cardholder’s
credit card debt from a deposit account held with the card issuer
(subject to the limitations in section 1026.13(d)(1)).
(ii) With respect to a covered separate
credit feature accessible by a hybrid prepaid-credit card as defined
in section 1026.61, for purposes of this paragraph (d)(3), “periodically”
means no more frequently than once per calendar month, such as on
a monthly due date disclosed on the applicable periodic statement
in accordance with the requirements of section 1026.7(b)(11)(i)(A)
or on an earlier date in each calendar month in accordance with a
written authorization signed by the consumer.
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(e) Prompt notification of returns and
crediting of refunds.
(1) When a creditor other than the card issuer accepts the return
of property or forgives a debt for services that is to be reflected
as a credit to the consumer’s credit card account, that creditor shall,
within 7 business days from accepting the return or forgiving the
debt, transmit a credit statement to the card issuer through the card
issuer’s normal channels for credit statements.
(2) The card issuer shall, within 3 business
days from receipt of a credit statement, credit the consumer’s account
with the amount of the refund.
(3)
If a creditor other than a card issuer routinely gives cash refunds
to consumers paying in cash, the creditor shall also give credit or
cash refunds to consumers using credit cards, unless it discloses
at the time the transaction is consummated that credit or cash refunds
for returns are not given. This section does not require refunds for
returns nor does it prohibit refunds in kind.
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(f) Discounts; tie-in arrangements. No card
issuer may, by contract or otherwise:
(1) Prohibit any person who honors a credit
card from offering a discount to a consumer to induce the consumer
to pay by cash, check, or similar means rather than by use of a credit
card or its underlying account for the purchase of property or services;
or
(2) Require any person who honors
the card issuer’s credit card to open or maintain any account or obtain
any other service not essential to the operation of the credit card
plan from the card issuer or any other person, as a condition of participation
in a credit card plan. If maintenance of an account for clearing purposes
is determined to be essential to the operation of the credit card
plan, it may be required only if no service charges or minimum balance
requirements are imposed.
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(g) Relation to Electronic Fund Transfer Act and Regulation E. For
guidance on whether Regulation Z (12 CFR part 1026) or Regulation
E (12 CFR part 1005) applies in instances involving both credit and
electronic fund transfer aspects, refer to Regulation E, 12 CFR 1005.12(a)
regarding issuance and liability for unauthorized use. On matters
other than issuance and liability, this section applies to the credit
aspects of combined credit/electronic fund transfer transactions,
as applicable.
