BUS201 - Business Law
Question 17
Chandra lost her credit card. She had a credit limit of $1,000 on the card. As soon as Chandra discovered that the card was lost, she notified the card issuer. Unfortunately, a thief had already incurred $1,700 of expenses on the card. What law applies to this situation and what is Chandra’s liability to the card issuer? Explain your answer.
Federal law limits the liability of a card owner in the event of card theft and unauthorised charges on it. This protection depends on two things :
- the type of card
- theft report by card owner (when it was reported)
Legally, once a theft of a card has been reported to the bank via their customer service helplines, the card owner cannot then be held responsible for any future unauthorised charges on it. Under the FCBA - Fair Credit Billing Act, the liability for unauthorised charges on a stolen credit card are set to a max of $50 if the theft is reported within 2 days. If the theft is reported before the charge, then there is no liability at all. (Federal Trade Commission)
The expenses incurred appear to be more than the credit limit of the card, which should not be the case. The card issuer would have rejected the purchase due to its exceeding the limit. If that was done, then there are no charges on the card and Chandra is not liable for any amount.
If however the charges were taken on the card - Chandra reported the loss of her card as soon as she noticed it (assuming inside of 2 days) and so her liability to her card issuer is a maximum of $50 regardless of the unauthorised transaction amount, according to the US Code 1643 - Liability of holder of credit card. (Legal information institute)
Note : If however, Chandra took more than 2 days but less than 60 days after receiving a statement, then she is liable to the tune of $500 according to FCBA. (Federal Trade Commission)
References :
Federal Trade Commission. Lost or Stolen Credit, ATM, and Debit Cards
Legal information institute. 15 U.S. Code § 1643.Liability of holder of credit card. Cornell Law School.
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