CREDIT CARD PAYMENT SYSTEM System involves Several major participants Purchaser that is cardholder Card Issuer that issues credit card Merchant that makes the sale Merchant’s Bank Collects payment For Merchant Credit Card Network Facilitates collection Of payment

ISSUER AND CARDHOLDER RELATIONSHIP Truth-in-LendingAct 1.Prohibits unsolicited issuance of credit card TILA  132; Reg Z.  (a) 2.Disclosure provisions substantial. Reg Z.   226.5, Enforceable by private action including class actions. TILA  130(a)(2)(B) Reimburse Issuer over Time for purchases paid for by Issuer Promise to pay for purchases by cardholder

USING THE CREDIT-CARD ACCOUNT Merchant swipes card Slip produced for signature by customer

USING THE CREDIT-CARD ACCOUNT Contact merchant’s Bank With 1.Card number & V code 2.Expiration date & amount 3.Location & Standard Industry Code of merchant Terminal reads magnetic strip 1.Description of Issuing Bank 2.Account number 3.Card verification value or code

USING THE CREDIT-CARD ACCOUNT Merchant’s Bank routes to network 1.Card number & V code 2.Expiration date & amount 3.Location & Standard Industry Code of merchant Visa or Master Card

USING THE CREDIT-CARD ACCOUNT Network route message 1.To Issuing Bank or Processor 2.Determines whether account valid 3.Determines whether within transaction limits Visa or Master Card Issuing Bank Encrypted authorization

USING THE CREDIT-CARD ACCOUNT Merchant swipes card After authorization Slip produced for signature by customer

MECHANICS OF COLLECTION After Authorization 1.Merchant left with slip which must be collected through network 2.To collect merchant must have relation with member of network 3.Usually referred to as the Merchant’s Bank 4.Merchant deliver slips or terminal transmits single electronic batch Merchant’s Bank Merchant’s Bank gives provisional credit for % of gross amount

MECHANICS OF COLLECTION Merchant sorts the batched electronic messages 1.On-us 2.Send others for collection through the network Merchant’s Bank Network assesses interchange fee, credits Merchant’s Bank % of gross amount Visa or Master Card

MECHANICS OF COLLECTION Network sorts the batched electronic messages 1.Sorting is by member issuing banks 2.Debits each issuing bank for amount credited merchant’s Banks Visa or Master Card Issuing Bank

MECHANICS OF COLLECTION Issuer sorts the batched electronic messages 1.Sorting is by account and post to each account 2.Bills monthly Issuing BankCredit Cardholder Pays Monthly

USING THE CREDIT-CARD ACCOUNT Call Merchant from K.C. Boston

ERRORS AND FRAUD Card Issuer Kansas City 1.Consumer received billing statement 5/1/00 that was mailed 4/29/00. 2.On 5/25/00, Consumer noticed she was charged $150/day rate from Holiday Inn express, rather than $51/day. 3. Consumer, 60 days after it learned of a billing error, mailed a copy of the billing statement on which the consumer noted its objection. IF Issuer fails to respond, does Issuer violate the law? 1.TILA  161.(a), received 2. Reg  (b)

ERRORS AND FRAUD Card Issuer Kansas City 1.Consumer received billing statement 5/1/00 that was mailed 4/29/00. 2.On 5/25/00, Consumer noticed she was charged $150/day rate from Holiday Inn express, rather than $51/day. 3.Consumer timely mailed a notice of the billing error. May lawyer file suit? 1.TILA  161.(a) 2. Reg  (c) 3. Reg  (d)(1) 4.After receipt of the objection, creditor sent to its attorney who immediately instituted a law suit.

WIRE-TRANSFER SYSTEM. Three largest networks used 1.Fedwire: Predominant method for making domestic interbank wire transfers. 2.CHIPS (Clearing House Interbank Payment System): Predominantly use to clear international transfers in dollars. 3.SWIFT (Society for Worldwide Interbank Financial Telecommunication) Predominant method for competing funds-transfer not dominated in dollars. Principal Body of Law 1.Article 4A 2.Federal Reserve Regulation J

UNAUTHORIZED CHARGES Card Issuer Kansas City 1.Consumer learned that credit card stolen and statement contains $500 of unauthorized charges. 2.Is card holder liable for the amount of charges? 3.What must the card issuer establish to enforce the amount charged on the consumer’s credit card? 1.TILA  133(a) 2.Authorized use TILA  133(a) 3. Reg  (b)(1) Does TILA treat business credit Card holders any differently than Consumer? 1.TILA  Reg  (b)(5)