Sales of goods and services hardly take place these days on a purely cash basis. It is no longer farfetched to make purchases at groceries or retail stores without any cash on hand. With the advent of the internet, purchases within the confines of one’s home have also become more convenient than ever. The credit card has played an important role in these transactions.
The credit card gives the user access to a line of credit with the issuing bank or financial institution. It can do wonders to the user who knows the rules governing its use. But these rules can be quite complicated to the uninformed, and easily misunderstood by even the most experienced of credit card users.
Take the case of the couple William and Angela, who are the plaintiffs in Acri v. CIBC, SC-08-0072842-0000 (2009). After seeing the online ad of a used 2005 Porsche Cayenne S, William became interested. He decided to purchase the vehicle from the merchant, using his wife’s visa credit card to pay for about half of the purchase price.
The vehicle was transported to the couple’s home in Toronto. But the vehicle was not in the condition that William had hoped to find. Among William’s complaints were “bald and cracked tires, only one key which was old and abused, a missing headrest, missing floor mats, a deep scratch in the passenger window, the bracket that holds the licence plate could not do so, and no owner’s manual”.
After estimating the cost he would incur in bringing the vehicle to a more satisfactory condition, William wrote the bank requesting that the amount of CAD$5,000 be charged back and credited to Angela’s visa account.
A representative of the bank replied back requiring supporting documentation to enable the bank to dispute on the couple’s behalf the merchant’s billing to the credit card account. To be specific, the bank required a credit card voucher issued by the merchant.
The cardholder agreement with the bank provided that “the cardholder (Angela) including an authorized user (William) will settle all claims and disputes regarding any Transaction or any credit voucher issued by a merchant directly with the merchant”.
While acknowledging that the couple received the vehicle in a damaged or defective condition, the bank denied the chargeback. Among the reasons given by the bank was the failure of the couple to present a credit voucher from the merchant.
The bank also relied on the Dispute Resolution Rules of the “Visa International Operating Regulations (Volume II)”. In particular, Reason Code 53 of the Rules required as a condition to a chargeback the return of the defective merchandise to the merchant. The bank informed the couple that their recourse under the circumstances was with the merchant.
The couple sued the bank for damages for breach of contract claiming to be entitled to the chargeback.
According to the judge the cardholder agreement was binding on the parties. The language of the agreement did not support the bank’s position that the submission of a credit voucher was necessary to the chargeback.
But that finding was not enough to save the day for William and Angela. Not to be overlooked was the “Chargeback Rights and Limitations” covered by Reason Code 53, which stated that “the chargeback is valid if returned merchandise is refused by the Merchant and Issuer (the bank) can provide evidence of refusal”.
What should the couple have done? Return the vehicle to the merchant, or at least write to the merchant, with a copy to the bank, requesting a “return merchandise authorization” or “return address” to which the vehicle could be returned. The refusal of the merchant to provide either the authorization or return address, or mere silence on the merchant’s part, would have fulfilled the requirement, said the judge.
Since there was no evidence of the merchant’s refusal, the chargeback was properly denied by the bank. The judge noted that where there is a dispute between cardholders and the issuing visa banks, Visa provides special rules governing cardholders’ entitlement to a chargeback. Since the rules did not entitle the couple to a chargeback, the bank fell back on the cardholder agreement which required the couple to settle their dispute directly with the merchant. The judge found no fault with the bank for taking that position and dismissed the action of William and Angela.
Whether the credit card should be considered a boon or bane, one thing is certain: credit cards are here to stay. Knowing the rules of use ensures that users maximize the benefits, including an entitlement to a chargeback in relation to credit purchases of damaged or defective merchandise.