Report From Counsel - Winter 2005

Report From Counsel

WINTER 2004/2005 ISSUE

CREDIT, ATM AND DEBIT CARDS: WHAT TO DO IF THEY'RE LOST OR STOLEN

Many people find it easy and convenient to use credit cards and ATM or debit cards. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) offer procedures for you to use if your cards are lost or stolen.

Limiting Your Financial Loss

Report the loss or theft of your credit cards and your STM or debit cards to the card issuers as quickly as possible. Many companies have toll-fee numbers and 24-hour service to deal with such emergencies. It's a good idea to follow up your phone calls with a letter. Include your account number, when you noticed your card was missing, and the date you first reported the loss.

You also may want to check your homeowner's insurance policy to see if it covers your liability for card thefts. If not, some insurance companies will allow you to change your policy to include this protection.

Credit Card Loss or Fraudulent Charges (FCBA). Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. Also, if the loss involved your credit card number, but not the card itself, you have no liability for unauthorized use.

After the loss, review your billing statements carefully. If they show any unauthorized charges, it's best to send a letter to the issuer describing each questionable charge. Again, tell the card issuer the date your card was lost or stolen, or when you first noticed unauthorized charges, and when you first reported the problem to them. Be sure to send the letter to the address provided for billing errors. Do not send it with a payment or to the address where you send your payments unless to are directed to do so.

ATM or Debit Card Loss or Fraudulent Transfers (EFTA). Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing before its used without your permission, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability under federal law depends on how quickly you report the loss.

For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you don't report the loss within two business days after you discover the loss, you don't report the loss within two business days after you discovery the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts. However, for unauthorized transfers involving only your debit card number (not the loss of the card), you are liability only for transfers that occur after 60 days following the mailing of your bank statement containing the unauthorized use and before you report the loss.

If unauthorized transfers show up on your bank statement, report them to the card issuer as quickly as possible. Once you've reported the loss of your ATM or debit card, you cannot be held liable for additional transfers that occur after that time.

Protecting Your Cards

The best protections against card fraud are to know where your cards are at all times and to keep them secure. For protection of ATM and debit cards that involve a Personal Identification Number (PIN), keep your PIN a secret. Don't use your address, birthdate, phone or Social Security number as the PIN and do memorize the number.

The following suggestions may help you protect your credit card and your ATM or debit card accounts.

For Credit and ATM or Debit Cards:

Be cautious about disclosing your account number over the phone unless you know you're dealing with a reputable company.

* Never put your account number on the outside of an envelope or on a postcard.

* Draw a line through blank spaces on charge or debit slips about the total so the amount cannot be changed.

* Don't sign a blank charge or debit slip.

* Tear up carbons and save your receipts to check against your monthly statements.

* Cut up old cards--cutting through the account number--before disposing of them.

* Open monthly statements promptly and compare them with your receipts. Report mistakes or discrepancies as soon as possible to the special address listed on your statement for inquiries. Under the FCBA (credit cards) and the EFTA (ATM and debit cards), the card issuer must investigate errors reported to them within 60 days of the date your statement was mailed to you.

* Keep a record--in a safe place separate from your cards--of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.

* Carry only those cards that you anticipate you'll need.

For ATM or Debit Cards:

* Don't carry your PIN in your wallet or purse or write it on your ATM or debit card.

* Never write your PIN in the outside of a deposit slip, an envelope, or other papers that could be easily lost or seen.

* Carefully check ATM or debit card transactions before you enter the PIN or before you sign the receipt; the funds for this will be fairly quickly transferred out of your checking or other deposit account.

* Periodically check your account activity. This is particularly important if you bank online. Compare the current balance and recent withdrawals or transfers to those you've recorded, including your current ATM and debit card withdrawals and purchases and your recent checks. If you notice transactions you didn't make, or if your balance has dropped suddenly without activity by you, immediately report the problem to your card issuer. Someone may have co-opted your account information to commit fraud.

Buying a Registration Service

For an annual fee, companies will notify the issuers of your credit card and your ATM or debit card accounts if your card is lost or stolen. This service allows you to make only one phone call to report all card losses rather than calling individual issuers. Most services will also request replacement cards on your behalf.

Purchasing a card registration service may be convenient, but it's not required. The FCBA and the EFTA give you the right to contact your card issuers directly in the event of a loss or suspected unauthorized use.

If you decide to buy a registration service, compare offers. Carefully read the contract to determine the company's obligations and your liability. For example, will the company reimburse you if it fails to notify card issuers promptly once you've called in the loss to the service? If not, you could be liable for unauthorized charges or transfers.

FOR MORE INFORMATION

The following federal agencies are responsible for enforcing federal laws that govern credit card and ATM or debit card transactions. Questions concerning a particular card issuer should be directed to the enforcement agency responsible for that issuer.

Board of Governors of the Federal Reserve System

Regulates state-chartered banks that are members of the Federal Reserve System, bank holding companies, and branches foreign banks:

Division of Consumer and Community Affairs, Atop 801

20th and C Streets, NW

Washington, DC 20551

202-452-3693

www.federalreserve.gov

Federal Deposit Insurance Corporation

Regulates state-chartered banks that are not members of the Federal Reserve System:

Division of Compliance and Consumer Affairs

550 17th Street, NW

Washington, DC 20429

877-ASK-FDIC (275-3342) toll-free

www.fdic.gov

National Credit Union Administration

Regulates federally chartered credit unions:

Office of Public and Congressional Affairs

1775 Duke Street

Alexandria, VA 22314-3428

703-518-6330

www.ncua.gov

Office of the Comptroller of the Currency

Regulates banks with "national" in the name or "N.A." after the name:

Office of the Ombudsman

Customer Assistance Group

1301 McKinney Street, Suite 3710

Houston, TX 77010

800-613-6743 toll-free

www.occ.treas.gov

Office of Thrift Supervision

Regulates federal savings and loan associations and federal savings banks:

Consumer Programs

1700 G Street, NW

Washington, DC 20552

800-842-6929 toll-free

www.ots.treas.gov

Federal Trade Commission

Regulates other credit card and debit card issuers:

Consumer Response Center

600 Pennsylvania Avenue, NW

Washington, DC 20580

877-FTC-HELP (382-4357) toll-free

www.ftc.gov

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-Help (1-877-382-4357); TTY 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

SETTLEMENTS AND VERDICTS

Vitamin Connection Center, Inc. (VCC), and its principals have agreed to a settlement equivalent in value to more than $600,000, including injunctive relief, to settle a class action brought by the law office of Shabel & DeNittis on behalf of over a 10,000 plaintiffs. The basis of the lawsuit alleged that defendants manufactured and marketed the MaxiReductor Kit, comprised of a topical gels and an exercise girdle, that allegedly caused its users to permanently "lose clothes sizes in five days."

The MaxiReductor Kit was heavily advertised on aired infomercials in the State of Florida in late 2002 and early 2003. The basis of the complaint alleged that the marketers falsely advertised that their product would cause fat loss. Defendants recently settled all charges dealing with the said MaxiReductor on October 19, 2004.

OSCAR WILDE AND COPYRIGHT LAW

Nineteenth-century writer Oscar Wilde had not yet produced the works for which he is best known when he came to the United States in 1882 for a lecture tour to promote a touring opera. He clearly was a celebrity in the making, however, and that is what brought him to the attention of Napolean Sarony. Sarony was making a name for himself, and lots of money, in the still emerging field of photography. He took photographs of the rich and famous, to whom he paid large sums in return for the exclusive right to distribute the photographs.

Wilde posed for 27 pictures taken by Sarony. When the most famous of these was used in an advertisement without Sarony's permission, he sued. The defendant was a lithographer who was said to have reproduced many thousands of copies of the image. Sarony alleged a violation of his copyright in the photograph. The defense was that Congress had the power to protect authors' writings, but not authors' photographs, which were described as mere reproductions of nature created by the operator of a machine.

The case went all the way to the United States Supreme Court (which itself was later the subject of a formal photographic portrait by Sarony). In a decision that has been valuable to photographers and copyright seekers ever since, the Court ruled that Sarony's photograph did indeed have copyright protection. The photograph was deemed a work of art and the product of the photographer's "intellectual invention," no different in nature from a novel. Rebutting the argument that taking a photograph has nothing to do with imagination, the Court described Sarony, as an art critic might have done, as having set up his subject "so as to present graceful outlines, arranging and disposing the light and shade, suggesting and evoking the desired expression."

The essential holding in Sarony's case is no less valid today, but more than a century later there are added layers of legal analysis to consider in our copyright jurisprudence. For example, in a recent case, a photographer took pictures of a blue vodka bottle for use in the vodka producer's marketing. The company then had other photographers take similar photos of the bottle and ended up using them in its advertising campaign. The first photographer sued for copyright infringement in his photographs. He reached back into the 19th century to cite the Sarony case, but lost.

The problem was not that the photographs were unworthy of copyright protection. Everyone agreed they were. However, under a doctrine that is now well established in copyright law, courts will not protect a copyrighted work if the idea underlying it can be expressed only in one way, such that the idea and the expression of it "merge." The basic question in the case was, "How many ways are there to create a 'product shot' of a blue vodka bottle?" The court's answer was "not very many."

NEW BANKING RULES AFFECT CHECKING ACCOUNTS

We Americans write about 40 billion paper checks each year. In addition, for the first time that number recently was eclipsed by the annual number of automated transactions involving checking accounts. Checking account transactions are such a widespread part of our lives that consumers of banking services are well advised to become acquainted with major changes affecting banking laws. Federal legislation called the Check Clearing for the 21st Century Act, or "Check 21" for short, went into effect on October 28, 2004.

The Dangers of "Floating"

Check 21 will allow financial institutions to process "substitute" checks--high-quality paper reproductions created from electronic images of both sides of an original check. In time, check processing will be faster, and this is where there will be ramifications for check writers and depositors.

While it has always been prudent to have enough money in your account to cover a check the moment you write it, who has not used the lag time in check processing to make a necessary deposit? That will soon become a riskier strategy as electronic check processing becomes more prevalent. It will also be more important than ever to keep checkbooks up to date, especially bearing in mind deductions for ATM withdrawals, bank fees, and debit-card purchases. (Another downside to faster check processing is that you may have less time to place a "stop payment" on a check that you have written.)

As a last resort, there are overdraft services, including overdraft lines of credit. They have their place, but remember that each use of an overdraft service is essentially a loan, usually with interest charges or other fees.

Electronic Substitute Checks

Today, most banks do not return customers' actual checks with their monthly statements. Under Check 21, even your bank may not receive your original check but, rather, an electronic substitute check created by the bank where the check was deposited. As long as the substitute check meets standards established under Check 21, it should be just as effective as the original for a customer who needs to prove a disputed payment. Of course, long before the enactment of Check 21, images of checks, rather than the real thing, have enjoyed widespread acceptance as proof of payment. Even if the substitute check falls short in some way, Check 21 provides warranties and remedies to protect the parties to a transaction.

Expedited Recrediting

Erroneous or fraudulent payments are largely the domain of state laws, which can vary greatly. Usually, a bank can be held liable to its customer if it charges the customer's account for a check that is not "properly payable." Check 21 has provisions for "expedited recrediting" in the event of improper payment.

A bank customer can make a claim for expedited recrediting from the bank holding the customer's account if the customer asserts in good faith that the bank improperly charged the account for a substitute check. The customer must show that producing the original check, or a better copy of it, is necessary to determine the validity of the charge to the account. A claim for expedited recredit must be made within 40 days of delivery of the relevant bank statement to the customer, or the date when the substitute check is made available to the customer, whichever is later.