Credit Card Service Corporation v. FTC, 73-1357.
| Decision Date | 29 March 1974 |
| Docket Number | No. 73-1357.,73-1357. |
| Citation | 495 F.2d 1004 |
| Parties | CREDIT CARD SERVICE CORPORATION, and John P. Ferry, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Stephen C. Rogers, Washington, D. C., for petitioners. John H. Schafer, III, Washington, D. C., also entered an appearance for petitioners.
Louis C. Keiler, Jr., Atty., F. T. C., with whom Harold D. Rhynedance, Jr., Asst. Gen. Counsel, F. T. C. was on the brief for respondent.
Richard P. Taylor, Washington, D. C., with whom William E. Miller, Michael D. Campbell and Michael J. Malley, Washington, D. C., were on the brief for Universal Air Travel Plan American Airlines, Pan American World Airways, Inc. and Piedmond Airlines Inc., as amici curiae urging reversal.
Thomas J. O'Connell, Washington, D. C., Gen. Counsel, Board of Governors of the Federal Reserve System, Carl D. Lawson and Arnold P. Lav, Attys., Dept. of Justice filed a brief as amicus curiae.
Before BAZELON, Chief Judge, MacKINNON, Circuit Judge and CHRISTENSEN,* United States Senior District Judge for the District of Utah.
The Federal Trade Commission Order under attack here requires petitioner1 to disclose in its advertising the statutory limitation on cardholders' liability for unauthorized use of their credit cards. Petitioner's central contention requires us to reconcile the 1968 Truth in Lending Act with its 1970 amendments. In addition, petitioner raises challenges concerning the breadth of the Commission's Order and the adequacy of the Commission's reasoning. Because we find petitioner's contentions without merit, we affirm.
For $9 a year, petitioner Credit Card Service Corporation notified credit card companies that a subscriber's cards had been lost or stolen. It also assisted subscribers in resolving billing errors and in obtaining new cards. Petitioner's advertising emphasized that an individual is liable for the full amount charged to a lost or stolen card until the card's issuer is notified. On August 24, 1971, the Commission issued a complaint alleging that such advertising had appeared after the effective date of the 1970 amendments to the Truth in Lending Act, which limit potential liability for a lost or stolen credit card to $50 per card.2 After a hearing, an Administrative Law Judge found that petitioner had engaged in "unfair methods of competition" and "unfair or deceptive acts or practices" in violation of Section 5 of the Federal Trade Commission Act.3 He ordered petitioner to cease and desist from representing that cardholders will have to pay for all goods and services obtained by unauthorized use of their cards.4 He also required that the following notice be contained in future advertising of petitioner's service:
The Commission affirmed the decision of the Administrative Law Judge.6
Petitioner contends that the Truth in Lending Act as amended distinguishes between business credit cards and consumer (non-business) credit cards — only with the latter is cardholder liability for unauthorized use limited to $50. Petitioner maintains, therefore, that the Commission's Order will foster "incomplete and . . . inaccurate disclosures,"7 because it disallows representations that cardholder liability is unlimited when a business card is lost or stolen.
In order to evaluate this contention we must consider the statutory background. In 1968 Congress passed the Truth in Lending Act8 in order "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him. . . ."9 The statute regulated the advertising of credit10 and required that the cost of credit be disclosed.11 Because it was a consumer protection statute, § 1603(1) exempted from the Act "credit transactions involving extensions of credit for business or commercial purposes . . . ."12
In 1970, Congress enacted Title V of Public Law 91-508 in order to regulate the credit card industry.13 This legislation prohibited the unsolicited distribution of credit cards,14 made the fraudulent use of such cards a federal crime,15 and, in § 1643, limited cardholder liability to $50 for the "unauthorized use of a credit card."16 Although other options were considered,17 the 1970 legislation was passed as an amendment to the 1968 Truth in Lending Act. Petitioner maintains that because the credit card legislation is an amendment to the 1968 Act, it is subject to the § 1603(1) "business exception" in that Act. Therefore, petitioner concludes, when a credit card is issued or used primarily for business or commercial purposes, the $50 liability limit of § 1643 does not apply.
Simply on the face of the statutory language, this argument is unpersuasive. The statutory limit on liability comes into play only when there is an "unauthorized use" of a credit card.18 Section 1603(1) exempts from the statute "credit transactions . . . for business . . . purposes."19 In the case of unauthorized use, the only event that is arguably a "credit transaction" is the unauthorized use itself. Does this mean that unauthorized uses for business purposes are "credit transactions . . . for business . . . purposes" and therefore exempt from the Act? Surely Congress did not intend that when a card is wrongfully used for business purposes the cardholder is fully liable, but when it is wrongfully used for consumer purposes, the limit on liability is $50. Under that approach, if a thief used a stolen credit card to rent a getaway car, we would have to decide if the rental was for a "business purpose" in order to determine the extent of the cardholder's liability. Indeed, as this example indicates, many unauthorized uses of credit cards are not ordinary "credit transactions" at all, but rather instances of fraud. In sum, given the absence of specific statutory language or legislative history, we cannot impute to Congress the unlikely intention that an "unauthorized use" could be a "credit transaction" for purposes of the § 1603(1) exemption.
Petitioner apparently agrees, since it does not argue that the nature of the unauthorized use governs the issue of liability limitation. Petitioner contends instead that § 1603(1) exempts business credit cards from the $50 limit, regardless of whether the cards are wrongfully used for business or consumer purposes.
Petitioner never explains why § 1603(1), which exempts certain "credit transactions" should apply to a particular class of credit cards. Of course, when an individual uses his card for business, that is a "credit transaction . . . for business . . . purposes." But in such a case, the liability limitation does not come into play because there has been no unauthorized use. If, nonetheless, we assume that using a card for business purposes exempts an individual from the liability limitation, how long does that exemption last? Until the next time the card is used for a non-business purpose? Under this approach, liability would depend on how a card was last used before it was lost or stolen.
Petitioner, of course, seeks to avoid this result. Its position seems to be that when a card is issued or used primarily for business, the card itself becomes "a credit transaction . . . for business . . . purposes."20 Thus the card is exempted from the statute by § 1603(1) even on those occasions when it is not used for business. We are unwilling to assume that a credit card can be transformed into a credit transaction in this fashion.21 Yet even if it could, petitioner's approach would be fraught with difficulty. For if § 1603(1) exempts business cards from the $50 liability limit it also exempts them from the other provisions of the 1970 credit card legislation — § 1603(1) provides exemption from the whole Act, not just part of it.22 This has disturbing consequences. As we have noted, the 1970 legislation makes the fraudulent use of credit cards a federal crime.23 Thus, under petitioner's approach, the fraudulent use of business credit cards would not be a federal crime, while the fraudulent use of consumer credit cards would be. This unlikely result should not be attributed to Congress in the absence of specific statutory language or legislative history, neither of which are present here.
Moreover, petitioner's approach would create practical difficulties. A credit card is often used for both business and personal transactions. Considerable litigation and uncertainty would result if courts had to determine if a card was used "primarily" for business.24 This determination would be necessary in order to decide whether the $50 liability limit applied and, what is worse, to decide whether a thief committed a federal offense when he fraudulently used a credit card.25
In sum, petitioner's attempt to apply the "business exception" to the $50 liability limitation requires stretching the statutory language, is unsupported by legislative history,26 and has troublesome implications for other portions of the statute. We hold therefore that Congress never intended that the limitation on liability for "unauthorized use of a credit card" contained in § 1643 be affected by the fact that certain "credit transactions" are exempted from the statute by § 1603(1).27 All credit cards, whether used for business or consumer purposes, are covered by the $50 liability limit.28
Our holding is in keeping with the...
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