A recent decision by the U.S. Court of Appeals for the Third Circuit should strengthen the hand of credit card issuers when faced with claims of unauthorized card use.
In Azur v. Chase Bank, USA, National Association, the Third Circuit ruled, in a decision issued April 1, 2010, that a credit cardholder:
- Did not have a right under 15 U.S.C. Section 1643 of the Truth in Lending Act (TILA) to reimbursement for payments made on charges resulting from fraudulent or unauthorized card use
- Could not avoid liability under TILA Section 1643 or 1666 for any such charges not yet paid because previous continuous payment of such charges had vested the fraudulent user with apparent authority to use the card
Azur involved a personal assistant who had been tasked with picking up the cardholder's bills from a post office box, opening the bills, preparing and presenting checks in payment of the bills to the cardholder for his signature, mailing the payments, and balancing the cardholder's checking account. The fraudulent charges, which occurred over seven years, were reflected on at least 65 monthly billing statements sent to the cardholder. To pay the bills, the assistant wrote checks, forging the cardholder’s signature, or made online payments from the cardholder’s checking account.
Section 1643 limits a cardholder's liability for unauthorized credit card use, and Section 1666 contains the procedures a creditor must follow to resolve alleged "billing errors." Under TILA, "unauthorized use" does not include use of a card by someone with apparent authority, and charges made by someone with apparent authority are not considered "billing errors."
According to the Third Circuit, because the plain meaning of Section 1643 addresses only when a cardholder "shall be liable" for unauthorized use, it does not entitle the cardholder to reimbursement for payments made. The court also found that the cardholder's Sections 1643 and 1666 claims were barred because continuous payment of the fraudulent charges vested the assistant with apparent authority to use the card, making it reasonable for Chase to believe that the charges were authorized. The Third Circuit observed that those payments were enabled by the cardholder's negligence in allowing his assistant to approve and pay billing statements while failing to review his checking account statements or oversee his assistant in any other way.
In addition to his TILA claims, the cardholder had asserted a claim for common law negligence. According to the Third Circuit, that claim was barred by Pennsylvania's economic loss doctrine, which precludes a claim for negligence that results solely in economic damages unaccompanied by physical or property damage.