Resolving Credit Card Disputes

Thomas H. Wolfe
August 16, 2010 | COMMENTS

In Edwards v. Wells Fargo, the Ninth Circuit Court of Appeals succinctly framed the issue before it as follows:

“[D]oes a credit card issuer have to resolve disputes about purchases with the consumer who used the card to buy the goods, or just with the person who obtained the card and authorized issuance of another card to the consumer? The answer is, the latter.”

Background

Wells Fargo Bank issued a credit card to its customer, who subsequently added his brother to the account. Both brothers signed a form acknowledging their equal rights and responsibilities as to the account. One of the brothers made arrangements with Wells Fargo for an additional card to be issued to a third individual, Paul Edwards (the plaintiff). Although the plaintiff claimed that he was told by Wells Fargo he would be personally liable for any charges along with the brothers, Wells Fargo disputed this and noted that no signed form acknowledging his personal responsibility was on file.

While using the card, the plaintiff had disputes with a variety of merchants over billing and alleged defective merchandise. Wells Fargo initially worked with him to resolve the disputes, mistakenly believing he was a lawyer for the brothers. Once the mistake was discovered, Wells Fargo stopped assisting him and wrote to the brothers directly. When they did not respond, Wells Fargo charged the account for the disputed amounts.

District Court Decision

Edwards sued Wells Fargo in a Nevada federal district court, alleging violations of the Fair Credit Billing Act and the Nevada Unfair Consumer Practices Act. The claims were based on seven specific disputes that Wells Fargo did not resolve with the plaintiff. The district court dismissed the action and Edwards appealed.

Court of Appeals Decision

The Truth in Lending Act and its implementing regulations provide, among other things, that credit card issuers have a duty to respond to and investigate billing disputes. The appeals court noted that the language provides that these duties run to the “obligor” on the account, but does not clearly define that term. The court looked first to Black's Law Dictionary for the ordinary interpretation, which defines an obligor as “[o]ne who has undertaken an obligation; a promisor or debtor.” Edwards argued that Wells Fargo owes this duty to him because he was the “cardholder” and “consumer,” regardless of whether he was the “obligor.” Wells Fargo contends that the duty only runs to the account holder and not to an “authorized user.”

The court noted that Wells Fargo clearly issued a card to the plaintiff in his name, entitling him to those duties owed to a “cardholder.” Also, “cardholder” is further defined in Regulation Z to include the plaintiff. However, the specific regulations governing billing disputes expressly state that this obligation to resolve disputes is owed to the “obligor,” not the “cardholder.” Credit was never offered or extended directly to the plaintiff.

Moreover, Edwards is not a “consumer” under Regulation Z (§226.15). As a non-obligor, he does not receive the periodic statements as contemplated by the dispute resolution regulations. He neither owes money on the account, nor does he have the ability to withhold disputed amounts as contemplated by the term. Taken in its full context—although it may make logical sense to resolve billing disputes with the cardholder—the regulation simply does not shift or expand the duty clearly owed to the obligor.

For Credit Unions

Credit card issuers need to be sure that all users of a credit card are clearly accounted for, and that their legal status is understood. For example, a co-borrower on an account has a different standing than a co-signor. Although both are ultimately liable, only one is contemplated to receive the benefit of the extension of credit. Credit unions with questions should consult their legal counsel.

Thomas H. Wolfe is an attorney in Anaheim, California. This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues.