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Several weeks have passed since the bankruptcy and there are many reports coming in of credit card companies denying disputes. In light of the way that the law is structured, this response is understandable, but it reflects a risk analysis by the credit card companies rather than an analysis of the customers' legal rights.
How the Credit Card Dispute Process Works
Most people know that within 60 days after being billed for a purchase made on a credit card, they can dispute the charge. The only significant requirement on the customer to use this process is to give the merchant a reasonable opportunity to correct the problem.
When you dispute a charge, the credit card company (CC) notifies the merchant that the charge has been disputed. Because Visa and MasterCard are "inter-bank" cards (meaning that the consumer has an account with one bank and the merchant has an account with another bank), the consumer's bank actually notifies the merchant's bank, which notifies the merchant that the charge has been disputed. In theory, this is transparent to the consumer, but it may result in less consistent handling by different consumers with the same brand of credit card.
After the merchant has been notified, the merchant can either do nothing, in which case the merchant is presumably "charged back" for the amount of the dispute or the merchant can claim that the consumer's dispute should not be honored. When this happens, the credit card company gives the consumer a chance to provide more information, and then makes a decision as to whether or not to honor the customer's dispute.
The credit card company essentially acts as an arbitrator to decide which side is right. However, the result is non-binding. From the law, it appears that a losing consumer would sue the credit card company. A losing merchant would most likely attempt to sue the consumer.
What Happens If Credit Card Company Fails to Follow Rules?
If the credit card company fails to follow the rules, the consumer doesn't have to pay the first $50 of the disputed amount. It's not really clear just what the obligations are for the CC to avoid this penalty , aside from responding to the consumer within the time period provided under the law.
However, all the CC's have good procedures in place to make sure they comply with the time period requirements. Losing $50 on every disputed transaction would be a big deal, especially when many of those transactions may be for relatively small amounts. But what if the CC arbitrarily denied a customer's dispute?
Nothing in Regulation Z attempts to address this... it's just assumed that the CC will have a reasonable basis for its decision. In the absence of a reasonable basis for their decision, it's at least arguable that the CC would be subject to the $50 penalty.
There's the rub: if you are disputing an amount larger than $50 and the CC has no way to charge back the merchant, it makes economic sense for them to possibly be subject to the $50 penalty under Regulation Z than to lose the entire amount by accepting the customer's dispute.
Claims and Defenses
However, the law provides (subject to certain limitations) that the claims and defenses you would have against the merchant you also have against the CC. To clarify, the "claims" apply when you file a lawsuit against the CC (e.g. to get back money you've previously paid), while the "defenses" apply when the CC sues you for failing to pay.
The big questions are:
These are big and nasty issues. Feel free to add your own opinions and/or come back later to read more of these legal ramblings.
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Revision r1.1 - 09 Jun 2001 - 17:18 by EliMantel
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