Finance Charges Are Not “Billing Errors” Under FCBA-TILA
One recent “get out of debt without paying” scheme is now being regularly denied in court. As all credit card providers know, the Fair Credit Billing Act (FCBA) allows consumers to send notices of billing errors when they find mistakes on their credit card statements. But just what is a “billing error”? Some debtors have adopted the practice of objecting to their entire monthly credit card bill, claiming that every single entry is an error because they did not get proper notices under the Truth in Lending Act (TILA) at the time they established the account. They claim that their “billing error” letter then triggers an obligation for the lender to conduct an investigation and report back to the borrower within 30 days. Courts are not looking favorably on this new tactic.
The United States District Court for the Northern District of Oklahoma, the United States District Court for the Southern District of Texas, and the United States Court of Appeals for the Fifth Circuit have all recently ruled that finance charges posted on a periodic statement by themselves are not billing errors. In Langenfeld v. Chase Bank, USA, N.A., et al. the Northern District of Oklahoma issued a clear ruling stating that because finance charges are not reflections “of an extension of credit” they do not and cannot qualify as “billing errors” under the FCBA. In Langenfeld, a holder of multiple credit card accounts sued his creditors and collection agencies, alleging violations of the FCBA. Following a strategy he had learned about on the Internet, Langenfeld claimed that the defendant financial institutions failed to respond properly to his billing error notices in which he claimed that all of his finance charges were billing errors. When the lenders did not respond to Langenfeld’s letters to his satisfaction, he sued. In response, the creditors argued successfully that their FCBA-compliance duties were not triggered by Langenfeld’s letters. The court rejected Langenfeld’s overly broad interpretation of the FCBA requirements. It held that Langenfeld’s interpretation would “allow a challenged item to be anything for which a credit card holder requests documentation which appears on the statement.” Rather, the court held that the Internet form notices do not alert a lender to a “billing error.”
It remains to be seen whether other federal courts will follow the recent trend. In any event, it is likely that consumers will continue to flood lenders with notices of purported billing errors and will continue to litigate the impact of those form notices when lenders do not respond. Our advice to lenders is to incorporate the logic of some of these recent cases into their responses to these flawed notices of billing errors.
Congress Unanimously Passed Much-Needed Changes to FACTA
On June 3, 2008, President George W. Bush signed into law the Credit and Debit Card Receipt Clarification Act of 2007 (Act). The Act amends the Fair and Accurate Credit Transactions Act (FACTA ), which was enacted into law in 2003. One of the purposes of FACTA is to prevent criminals from obtaining access to consumers' private financial and credit information in order to reduce identity theft and credit card fraud. As part of that law, Congress enacted a requirement, through an amendment to the Fair Credit Reporting Act (FCRA), that no person who accepts credit cards or debit cards for the transaction of business shall print more than the last five digits of the card number or the expiration date upon any receipt provided to the card holder at the point of the sale or transaction.
In an attempt to comply with the requirements of FACTA, many merchants truncated the credit card account number on their receipts. But many also mistakenly printed the expiration date of the credit card on the receipts. Eager attorneys filed hundreds of lawsuits alleging that the failure to remove the expiration date was a willful violation of the FCRA, even where the account number was properly truncated. The lawsuits, however, failed to contain an allegation of harm to any consumer's identity. Experts in the field agree that proper truncation of the card number, regardless of the inclusion of the expiration date, prevents a potential fraudster from perpetrating identity theft or credit card fraud. The Act seeks to prevent these types of lawsuits, finding “that despite repeatedly being denied class certification, the continued appealing and filing of these lawsuits represents a significant burden on the hundreds of companies that have been sued and could well raise prices to consumers without corresponding consumer protection benefit.” The purpose of the Act is therefore “to ensure that consumers suffering from any actual harm to their credit or identity are protected while simultaneously limiting abusive lawsuits that do not protect consumers but only result in increased cost to business and potentially increased prices to consumers.”
The Act provides that if a merchant properly truncates a credit card number, it will not be liable for a willful violation of the FCRA simply because it prints the card’s expiration date on the receipt.
The Act provides the added bonus of applying retroactively — meaning it will apply to all cases currently pending before the courts — in addition to any future claims. Because the FCRA requires that the plaintiff show that he or she sustained actual damages to recover, most claims in which the merchant properly truncated the credit card account number but mistakenly printed the expiration date will likely not cause any liability to the merchant.
Legal News: Consumer Financial Services Litigation Update is part of our ongoing commitment to providing legal insight to our clients and our colleagues.
If you have any questions about these issues or would like to discuss these topics further, please contact your Foley attorney.