By Nicole D. Prysby, J.D.
A federal district court should not have dismissed a consumer’s Fair Credit Billing Act and Truth in Lending Act claims against Bank of America, after it billed the consumer for an unauthorized charge, removed it, and rebilled it, held the Third Circuit Court of Appeals. The court reversed the lower court’s finding that the FCBA 60-day period to provide written notice of the dispute began with the first incorrect statement. Because the bank stated that it would remove the charge (and did so on the following statement), the period did not begin until the statement where the charge was reinstated. To hold otherwise would mean that consumers would be forced to file written disputes over issues that were seemingly resolved, or risk losing their rights under the FCBA. In addition, the court reversed the lower court’s finding that the consumer could not be reimbursed under TILA. In order to avoid potential late fees, the consumer paid the unauthorized $657 charge before filing the lawsuit. Bank of America argued that TILA provided no right of reimbursement and that merely listing the charge on a statement did not create "liability" for the consumer. The Third Circuit found that TILA’s actual damages provision would cover the reimbursement and that a cardholder incurs liability for a charge when it appears on a statement (Krieger v. Bank of America, N.A., May 16, 2018, Krause, C.).
Background. The consumer was the victim of a computer scam. After his home computer stopped working, he received a call from an individual who identified himself as a Microsoft employee, who stated that he could fix the computer if granted remote access. The consumer acquiesced, but realized that it was probably a scam when he saw his Bank of America credit card flash across the screen. He immediately contacted Bank of America, and was told that a $657 Western Union money transfer had been purchased on his card. He told the representative that the charge was not authorized and that his account was compromised, but the representative said nothing could be done until the consumer received his next monthly billing statement. On receipt of the statement, he again called Bank of America, and was told that it could do nothing because Western Union had already authorized the payment. He threatened to cancel his card, and the bank offered to credit his account while it conducted an investigation. It credited his account on his next statement and sent him a letter stating that while Western Union would have the opportunity to review the information, it considered the matter closed.
However, the next month, the consumer received a letter from Bank of America saying that it was reinstating the charge because Western Union provided a copy of the sales slip, and the information matched his home address. He again asserted to Bank of America that the charge was unauthorized, paid the charge to avoid late fees, and then brought claims under the FCBA and TILA.
The district court dismissed the consumer’s FCBA claim because it believed the claim was not timely. Under the district court’s view, the relevant billing statement was the statement on which the charge first appeared, and Bank of America did not receive written notice of the dispute until after the 60-day period expired. The lower court rejected the consumer’s argument that the 60-day period should have started with the statement where the charge was reinstated. The district court also sided against the consumer on the TILA claim, holding that TILA’s unauthorized use provision did not provide the consumer with a right to reimbursement or a private right of action.
FCBA claim. The Third Circuit first held that the consumer had stated a claim under the FCBA, because the consumer was correct when he argued that the 60-day period should have started with the statement reinstating the charge. The FCBA imposes an obligation on a consumer only when he or she believes a statement contains a billing error. Had Bank of America never reinstated the charge, there would have been nothing to dispute. A reasonable consumer would assume that the matter was resolved after being told that the charge was being taken off and that the bank considered the matter closed. To hold otherwise would require that consumers file written disputes concerning seemingly "resolved" disputes or risk forfeiting their rights under the FCBA.
The court held that the district court had relied on an inapplicable Regulation Z provision, which states that the first periodic statement reflecting an error starts the 60-day period. That regulation applies to errors on regularly recurring statements, but not in the case where there is an error on one statement, which is corrected on the next, and then reintroduced. Because the FCBA does not require a consumer to give notice unless the consumer believes there is an error, not only would there be no reason for a consumer to provide written notice if an error has been corrected, the consumer also would be hard pressed to show any injury sufficient to support Article III standing. Therefore, the consumer’s FCBA claim should not have been dismissed on the grounds that it was untimely.
TILA unauthorized use claim. The Third Circuit also reversed the district’s court’s holding on the TILA claim. TILA’s private right of action allows a consumer to bring a claim if a creditor fails to comply with any requirement it is subject to under the unauthorized use provisions. The consumer argued that Bank of America failed to comply with the requirement that any liability be limited to $50, because the bank billed him for $657 after he notified the bank that the charge was unauthorized. This was sufficient to state an authorized-use claim.
The court also found that the district court erred in rejecting the consumer’s TILA claim seeking reimbursement. Bank of America argued that, under TILA, a consumer could not be reimbursed if he had paid the disputed charges. The court found that TILA’s actual damages provision would cover reimbursement for the $657 he paid and any other actual harm. Finally, the court rejected Bank of America’s argument that demanding payment on a statement did not violate TILA because it did not impose "liability" on a consumer. In other words, the bank argued it would first have to sue the consumer to create liability for the charge. But because the cardholder is liable for the charges once they appear on a statement, Bank of America’s argument was incorrect. The court found that a cardholder incurs "liability" for an allegedly unauthorized charge when an issuer, having reason to know the charge may be unauthorized, bills or rebills the cardholder for that charge. When it does so, it must comply with TILA’s unauthorized charge provisions.
The case is No. 17-1275.
Attorneys: Brett M. Freeman and Carlo Sabatini (Sabatini Law Firm) for William Kreiger. Michael C. Falk (Reed Smith LLP) for Bank of America, N.A.Companies: Bank of America, N.A.; Western Union.
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