Posted by William Charles on February 7, 2018
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Published on February 7th, 2018 | by William Charles

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Federal Court Determines Card Issuers Aren’t Responsible For Chargebacks If Balance Has Been Paid

One of the advantage of using a credit card is that if the goods or services aren’t delivered, you can issue a charge back with your card issuer and have the transaction refunded. The United States Court of Appeals
Tenth Circuit just decided an interesting case (really two cases: MALIK M. HASAN, M.D v CHASE BANK USA, N.A & MALIK M. HASAN, M.D v AMERICAN EXPRESS CENTURION
BANK). I’d recommend reading the case in full, but here’s my brief summary:

  • Malik Hasan ordered wine from Premier Cru Fine Wines (Premier Cru) for future delivery.
  • In January 2016, Premier Cru declared bankruptcy
  • Premier Cru delivered some, but not all of the wine ordered. Malik Hasan had the following amounts undelivered:
    • 689,176.92 with his Chase card
    • $379,153.72 with his American Express card
  • Malik Hasan filed a chargeback with both Chase & American Express. Chase agreed to credit and credited $100,136.88 and American Express refused to credit anything
  • Malik Hasan filed a lawsuit  seeking
    • $589,040.04 from Chase
    • $379,153.72 from American Express

The core of the case relates to Fair Credit Billing Act (an amendment to the Truth in Lending Act). Specifically section § 1666i (p9-10). Chase & American Express were able to successfully argue that because Malik Hasan had paid his balance, they weren’t required to honor the charge back.

On principal I disagree with the implications this decision has. Consumers shouldn’t be required to carry a credit card balance that usually incurs high fees and interest rates to have access to a consumer protection. In some cases it’s unreasonable to expect delivery of an item to be within a credit cards grace period, this would force a consumer to have to incur these fees to still be protected by a charge back.

Hat tip to View From The Wing



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JL
JL

DoC, I agree with your assessment, though I would frame it more specifically for anything that is “future delivery”, like wine in this case, vacation packages, pre-order of something. Would make 0 sense to have to carry the balance of that purchase and incur a ton of financing fees until the fulfillment of the order.

AB
AB

The government is entirely run by Republicans, consumer protections are basically out the window. Think of it as the trade-off for the tax cut that you just got.

Sean
Sean

There is no real tax cut for most people who pay state income tax AND property tax.

Blue
Blue

That’s not true; a lot of people who did that didn’t itemize in the first place.

Rob
Rob

You don’t have to itemize deductions to claim state and local taxes.

Sam
Sam

They were already getting a tax cut by not paying federal taxes on their state taxes. Now everyone else is getting a cut

LM
LM

all 150 pennies a month!

Robert
Robert

Are you serious?
CFPB is the biggest waste of space ever!
They do nothing but file a complaint..
They have no power and they do nothing that helps the customer (giving Banks some fees that goes to the CFBP does not help anyone)
Either close down this stupid system, or give them actual power.
Banks don’t care anymore about the CFBP

Yes, I’m making a hell of a lot of money for the tax cuts.
Thank you

Charles
Charles

You’re either a shill or a tool. The Mulvaney era is taking us back to the pre-CFBP hinterlands. Maybe it was ‘nothing but a complaint’ but those complaints put the fear of god into executive offices and made an obvious difference to anyone who cared to seek real, on the ground consumer protection. Your hot take is absurd and your tax cut is a heinous joke.

Brian
Brian

This comment is more than a little over dramatic (and probably the one above as well). The CFPB has had some pretty significant enforcement actions since their inception. As of March ’16 they had levied over $5B in fines, most of which was redress penalties- meaning it went back into the pocket of impacted consumers. The ability to file a complaint publicly did also tend to lead to more favorable outcomes for consumers (this is anecdotal, based on my personal experience and is likely YMMV but on average a consumer benefit.)

And while I think the comparison of consumer protection vs. tax cut directly is a false dichotomy, if we take the trade off as stated it likely slopes value based on total income. If you make a substantial amount of money, both the absolute and percentage increase in income you get from the tax cuts likely outweigh the benefits of consumer protections. If your income is low and you’re only gaining $1.50 per week from the tax cuts, you’d be more likely to benefit from the consumer protections as both the potential damages are likely to be a higher percent of your income and you are less likely to be financially savvy and therefore more likely to be taken advantage of.

For me, personally, I enjoyed leveraging the CFPB for complaints in the last few years, but have only netted maybe ~$200 from those complaints. The tax cuts benefit me significantly more than that, but I recognize that some people may not be so fortunate.

Robert
Robert

You obviously understand NOTHING about what a healthy economy needs.
Good thing your not in a position to help the economy in any way.
Tax cuts will help everyone in the long run….
Yes I understand that some people won’t understand how it will help, but I’m not here to teach them.
Regarding CFBP they have lost power… Most of the fines goes to the CFBP and the customer maybe gets back the money they lost! That’s it!
If the customer wanted they can go to small claims court, or other channels to get the money back.

Unless CFBP actually gets a lot more power and control, it’s a WASTE of a program.

Sorry to say, the $200 you made is not worth the millions the government is wasting on this program

Jack
Jack

If our economy needs constant tax cuts, no matter how high the markets or how low the unemployment, let’s just cancel taxes and run 100% deficits.

Robert
Robert

That’s a brilliant idea!
That way we don’t have anyone responding to 911 calls.
We will all feel very safe lol.

But on a serious note, I agree that we should cut taxes, as look where the tax money is going to.
Tax money thats going to other countries to feed people, yet in our land, people are starving! People are homeless etc.
Take tax on how much the government actually needs for our people, for others you can have organizations giving money, not the government.

Peteco
Peteco

Yeah, look at what happened to Kansas after the governor had the brilliant idea to cut taxes dramatically, believing companies will move in and grow, which would trickle down. Nonsense.

Dan
Dan

Not sure if you really read the comment before replying , but it sounds like you don’t understand the economy. 100% deficits means people would still be paid, simply the government would borrow all the money through bonds, etc, rather than collect taxes.

This is really a pointless conversation, so I won’t be going further or following this thread. I doubt the CFBP uses tax dollars efficiently, but I fail to see how they do anything negative either.

Jon
Jon

Damn, Robert, you come across as a lunatic.

Jeff
Jeff

Robert, I can be just as condescending and say YOU KNOW NOTHING. Do these BOLDED words make me SOUND more BELIEVABLE?

First off, on the subject of tax cuts, the vast majority of economists (you know, the people who actually spend their lives researching the economy) argue that the tax cuts went way too far. They should have added incentivized cuts for adding jobs or additional US capital expenses — there was no need to great rid of the estate tax for example. And, you want to reduce the deficit while your economy is doing well — not add to it during good times (we are basically at full employment). If you really need to spend, infrastructure spending would have been much better use of deficit spending.

As far as CFPB does, so your suggestion is to take my $50 fee to small claims court? Because everyone has time to take half the day going through small claims? Is your suggestion to WASTE additional spending on our courts than the CFPB? Not only does the CFPB attempt to return unwarranted fees but they also track cases to determine whether violations are more systemic from bank policy than just one-off outliers.

Leo
Leo

Jeff, Sounds like you’d have to take time off from being a student or being an academic. People who can’t do, teach or just sit and research. Analysis paralysis. Sounds like you should find a better use of your free time so that you can afford to go to small claims court. Most of those academic economists are paid by state universities that are supported by taxes (or by endowments at the Ivy’s & Stanford paid for by wealthy donors). Sounds like living off others.

James
James

Leo, if it were the case that academic jobs were so easy to just sit and get paid, by your logic, wouldn’t there be serious competition for these jobs?

Jack2
Jack2

Remember who pays these people…
And what they need to keep the job..

Eric
Eric

I see that you are posting with a fake name Robert. The only reason I checked is that you wrote “Jack2” which is kind of weird.

Maria
Maria

@Robert
FYI: Because of the numerous complaints made to the CFPB by consumers, Chase no longer seizes your Ultimate Rewards points if they close your accounts. They now give you 30 days to transfer them out. This is just one example of what the CFPB has done.

Super Leisure Man
Super Leisure Man

Appeals judge was appointed by Obama in 2014, try again.

Max
Max

Same criticism stands. Obama didn’t prosecute any of the bankers who caused the 2008 collapse despite clear evidence of fraud. He took a list from Citigroup advising him of his cabinet picks and put every single one of those picks but one into his cabinet. He put Geitner and Summers back in power.

Not a surprise Obama would appoint a judge favourable to banks and corporations in general. Even Kagan and Sotomayor who are thought of as liberal in the general discourse are more corporate friendly in their rulings than RBG and Breyer.

Chucks
Chucks

It doesn’t matter who appointed whom, the judge fairly interpreted the law in this case. Claims against Amex and Chase are limited to “credit outstanding” for these transactions per sec 1661i. It’s simply not possible to interpret “credit outstanding” to cover the transactions in question.

Now, should the law be changed to accommodate longer charge back periods? Very probably. Or you’d see various card issuers offering extended chargeback periods on cards as features.

But to suggest the judge in question incorrectly interpreted the law is simply wrong. It’s not the duty of a judge to change the proper interpretation of a law simply because the outcome is undesirable.

Nate
Nate

+1, law should be changed but not by judge.

Outlook
Outlook

Judge Moritz was appointed by Obama, Senior Judge Murphy was appointed by Clinton, Senior Judge Kelly was appointed by Bush 41. It’s a circuit court, not a trial court — there’re more than one judge.

EbonyTatas
EbonyTatas

2/3 judges hearing the case were appointed by Clinton. The other was appointed by Obama. Let’s try keeping the political garbage out of the discussion and stick to the parts of the story that are pertinent to the site.

james
james

I hope you enjoy the next 7 years like I know I will.

CARLOS
CARLOS

Ok here we go.
Give it a rest will ya??

Mist Soalar
Mist Soalar

I always see at least 5 wine stores on my amex offers. Amex should have figured out a new way of profit boost.

EbonyTatas
EbonyTatas

I can understand why the consumer would lose in this case, though not necessarily for this reason. If you ordered a product or a service from a vendor and they vendor goes bankrupt before delivery, you essentially become one of many in a long line of creditors/debtholders that will have a claim against the company in bankruptcy proceedings. This would obviously not be the fault of AMEX or Chase, so I agree they should not have to pony up any money in this instance. We’ve seen similar issue when airline companies have declared bankruptcy, and consumers are unfortunately left shafted.

I do agree with DoC though……the ruling on the chargeback issue makes no sense. As a cardholder I’m expected to not pay my bill and accrue interest until I am fully satisfied with my purchase?

Chucks
Chucks

The ruling makes perfect sense as the law limits the responsibilities of issuers to “payments outstanding”. I don’t think it’d be crazy for the law to change for protections to be extended to include up to, say 180 days protection on the fulfillment of past purchases, but that’s the job of Congress, not a judge.

Maria
Maria

I did not read the ruling, but does the issue of the bankruptcy have anything to do with it? What if there was no bankruptcy but the wine was only spoiled. Does the consumer not have a right to the chargeback after paying the balance?

Max
Max

Paid or not paid in regards to the title of the article.

parrothead
parrothead

Paid

FlyingXplorer

This highlights the common myth of the protectiveness that exists thanks to affiliate marketing. When push comes to shove (i.e. large amounts), credit card protection is really not that great. And yeah, Amex is usually the first to decline a big chargeback.

Remember the story of the weatherman, John Bolaris, who was physically coerced into signing credit card receipts? Amex declined his chargeback. Amex won in court. Media gets wind of the story and eventually caves in. It’s an old story and I may mix up some details, but that’s the gist of it.

zmicer
zmicer

That’s a lot of wine!

jk77451
jk77451

Don’t merchants usually charge the card at time of delivery? I can understand deposits for something but I would hesitate to pay the full amount of anything until I knew something was shipped…

paz
paz

I hope the plaintiff files for hearing en banc. If left standing it’d be a terrible case law for consumers.

Nick
Nick

Well, on the plus side, Dr. Hasan earned almost million points from these purchases.

LC
LC

Thinking like a true churner. I think this is the cardmembers fault because he should have clearly diversified his assets by signing up for multiple cards to get multiple bank bonuses with his purchases.

Anyone know what his 5/24 status was when he was dumb enough to make these purchases?

Gabe
Gabe

An eye opener for sure; the lesson to be learned is this – never charge the full amount up front on your CC if you don’t expect the full delivery of goods within the chargeback period; instead, work out a monthly payment amount with the vendor that will be charged to the CC throughout the delivery period.

chris a
chris a

+1. An eye opener indeed for all of us.

BT
BT

Am i the only one who’s wondering why a doctor is ordering almost 1 million dollars worth of wine?

wz
wz

A doctor can afford to spent 1 million dollars on wine. I think this is the fked up part of story.

Aditya Shrivastava
Aditya Shrivastava

hahahahaha]

m
m

+1. Why oh why didn’t I marry a doctor…? lol

S
S

It definitely seems unfair that Malik Hasan got screwed in this transaction. However, I agree with the ruling. The banks issued him credit, which he paid back in full. The duty of the bank was to provide protection on the credit transaction, not afterwards. His real claim is against Premier Cru Wines for non-delivery.

Maria
Maria

“The banks issued him credit, which he paid back in full.”
What do you mean the banks issued him a credit that he later paid back in full? The only credit the doctor received was only a portion of the chargeback, about $100k, from Chase. He sued for the remainder. AmEx gave him nothing from the beginning.

Eric
Eric

If Amex/Chase had paid back the money would you have said it was unfair that they were “screwed”?

MarcoPolo
MarcoPolo

The reason we have lobbyists is to put loopholes into every rule/law.
Judges made the decision based on the applicable rules. Remember they decide based on their interpretation of the rules/laws as written.
Just my 2 cents

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