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Krieger v. Bank of America, N.A.

United States Court of Appeals, Third Circuit

May 16, 2018

WILLIAM KRIEGER, Appellant
v.
BANK OF AMERICA, N.A.

          Argued: September 27, 2017

          On Appeal from the United States District Court for the Middle District of Pennsylvania (M.D. Pa. No. 4-16-cv-00830) Honorable Matthew W. Brann, U.S. District Judge

          Brett M. Freeman Carlo Sabatini Sabatini Law Firm Counsel for Appellant

          Michael C. Falk Reed Smith LLP Three Logan Square Philadelphia, Counsel for Appellee

          Before: AMBRO and KRAUSE, Circuit Judges, and CONTI, Chief District Judge [*]

          OPINION

          KRAUSE, Circuit Judge.

         The same day Appellant William Krieger fell victim to a credit card scam and discovered a fraudulent $657 charge on his bill, he protested to his card issuer, Bank of America (BANA), [1] and was told both that the charge would be removed and that, pending "additional information, " BANA considered the matter resolved. And indeed, Krieger's next bill reflected a $657 credit. But over a month later Krieger opened his mail to some particularly unwelcome additional information: BANA was rebilling him for the charge. He disputed it again, this time in writing, but after BANA replied that nothing would be done, he paid his monthly statement and then filed this action, alleging BANA violated two consumer protection laws: the Fair Credit Billing Act, which requires a creditor to take certain steps to correct billing errors, and the unauthorized-use provision of the Truth in Lending Act, which limits a credit cardholder's liability for the unauthorized use of a credit card to $50. The District Court granted BANA's motion to dismiss the operative complaint after determining Krieger had failed to state a claim as to either count. Because we conclude the District Court's decision was contrary to the text, regulatory framework, and policies of both statutes, we will reverse.

         I. Background

         A. Statutory Background

         Congress enacted the Truth in Lending Act (TILA or Act), Pub. L. No. 90-321, 82 Stat. 146 (1968) (codified as amended at 15 U.S.C. §§ 1601-1667f), in response to "widespread consumer confusion about the nature and cost of credit obligations." Gennuso v. Commercial Bank & Tr. Co., 566 F.2d 437, 441 (3d Cir. 1977). TILA's express purpose is 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 and avoid the uninformed use of credit." 15 U.S.C. § 1601(a). Serving to "even the often slanted credit and lending playing field, " Vallies v. Sky Bank, 432 F.3d 493, 495 (3d Cir. 2006), as amended on reh'g (Feb. 1, 2006), and to "guard against the danger of unscrupulous lenders taking advantage of consumers through fraudulent or otherwise confusing practices, " Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 502 (3d Cir. 1998), the Act, in simplest terms, "reflects a transition in congressional policy from a philosophy of 'Let the buyer beware' to one of 'Let the seller disclose, '" Mourning v. Family Publ'ns Serv., Inc., 411 U.S. 356, 377 (1973).

         To further that policy, TILA generally requires that a creditor in a consumer transaction disclose, among other things: "(1) the identity of the creditor; (2) the amount financed; (3) the finance charge; (4) the annual percentage rate; (5) the sum of the amount financed and the finance charge, or total of payments; [and] (6) the number, amount, and due dates or period of payments scheduled." Cappuccio v. Prime Capital Funding LLC, 649 F.3d 180, 188 (3d Cir. 2011), as amended (Sept. 29, 2011) (internal quotation marks omitted). Creditors also must provide "explanations and definitions" of each of those terms, id., as well as information regarding "borrowers' rights, " Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 54 (2004). All of this information, the Act mandates, must be disclosed "clearly and conspicuously, " that is, "in a reasonably understandable form and readily noticeable to the consumer." Rossman v. Fleet Bank (R.I.) Nat'l Ass'n, 280 F.3d 384, 390 (3d Cir. 2002).

         While TILA offers a "range of remedies to achieve its goals, " Vallies v. Sky Bank (Vallies II), 591 F.3d 152, 156 (3d Cir. 2009), central among them are consumer suits, which Congress sought to "encourag[e] . . . to deter violations of the Act, " Johnson v. W. Suburban Bank, 225 F.3d 366, 374-75 (3d Cir. 2000). TILA provides a private right of action, 15 U.S.C. § 1640(a), to all "consumers who suffer damages as a result of a creditor's failure to comply with TILA's provisions." Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 235 (2004). Section 1640(a) permits recovery of actual damages, statutory damages, costs, and attorneys' fees, and, as relevant here, may be used as a basis for a claim against "any creditor who fails to comply with any requirement imposed under [15 U.S.C. §§ 1631-1651], including any requirement under . . . [15 U.S.C. §§ 1666- 1666j]."

         This case involves two of those requirements: (1) a TILA provision known as the "Fair Credit Billing Act, " which requires a creditor to comply with particular obligations when a consumer has asserted that his billing statement contains an error, 15 U.S.C. § 1666; and (2) TILA's unauthorized-use provision, which requires a credit card issuer to satisfy certain conditions before holding a cardholder liable for the unauthorized use of a credit card, including limiting the cardholder's liability to $50, 15 U.S.C. § 1643.

         1. The Fair Credit Billing Act

         Shortly after enacting TILA, Congress amended it by way of the Fair Credit Billing Act (FCBA), Pub. L. No. 93-495, 88 Stat. 1511 (1974) (codified as amended at 15 U.S.C. §§ 1666-1666j). Building on TILA's original goal of "requir[ing] . . . full disclosure of credit charges . . . so that the consumer can decide for himself whether the charge is reasonable, " S. Rep. No. 90-392, at 1 (1967), the FCBA aims to "protect the consumer against inaccurate and unfair credit billing and credit card practices, " 15 U.S.C. § 1601(a). As relevant here, the FCBA imposes on creditors "requirements . . . for the correction of billing errors." Am. Express Co. v. Koerner, 452 U.S. 233, 234 (1981).

          The "primary" such requirement, at issue in this case, is that if a creditor receives "written notice" from a consumer that "indicates [his] belief that [his] statement contains a billing error" within 60 days after the creditor transmitted that statement, the creditor must comply with "two separate obligations." Id. at 234, 236 (citing 15 U.S.C. § 1666(a)). First, within 30 days of receiving that written notice, it must acknowledge receipt to the consumer in writing. 15 U.S.C. § 1666(a)(3)(A). Second, within two billing cycles and "in no event later than ninety days" after the consumer files his written dispute, it must either (1) "make appropriate corrections" to the consumer's account, "including the crediting of any finance charges on amounts erroneously billed, " or (2) "conduct[] an investigation" into the dispute and "send a written explanation" to the consumer "setting forth to the extent applicable the reasons why the creditor believes the account . . . was correctly shown in the statement." Id. § 1666(a)(3)(B)(i)-(ii). The creditor must take these steps "before making any attempt to collect the disputed amount." Am. Express, 452 U.S. at 237.

         2. TILA's Unauthorized-Use Provision

         While the FCBA applies to all creditors, including credit card issuers, Congress elsewhere amended TILA to include another layer of protection specifically for consumers who use credit cards. Act of Oct. 26, 1970, Pub. L. No. 91-508, 84 Stat. 1114, 1126-27. Responding in part to the then-"relatively recent development" of unsolicited credit cards, S. Rep. No. 91-739, at 2 (1970), Congress also took aim with these amendments at an issue "associated not only with unsolicited credit cards but with all credit cards-the problem of liability in the event the card is lost or stolen, " id. at 5. Because, even after TILA was enacted, "[m]ost credit card agreements" held a consumer liable for any losses incurred by the unauthorized use of a credit card before the consumer had notified the issuer that the card had been lost or stolen, Congress recognized that a consumer's failure to "immediately discover and report" a loss or theft could result in his being held liable for "thousands of dollars in unauthorized purchases made by a fast working thief." Id. What's more, there was "little incentive" for card issuers to "take precautionary action" because any such liability could "always be passed on to the cardholder." Id.

         To fix this problem, Congress enacted 15 U.S.C. § 1643, entitled "Liability of holder of credit card, " to "safeguard the consumer . . . by limiting the liability of consumers for the unauthorized use of credit cards." S. Rep. No. 91-739, at 1. The statute accomplishes this goal by "plac[ing] the risk of fraud primarily on the card issuer, " and requiring the issuer to "demonstrate that it has taken certain measures to protect the cardholder from fraud before it can hold a cardholder liable for any unauthorized charges." DBI Architects, P.C. v. Am. Express Travel-Related Servs. Co., 388 F.3d 886, 892 (D.C. Cir. 2004). Under § 1643, an issuer may hold a cardholder liable for the unauthorized use of a card "only if" certain conditions are met. 15 U.S.C. § 1643(a)(1).

         Three of those conditions feature here. First, for liability to be imposed by the issuer, it must have given the cardholder "adequate" notice both of his potential liability and of how to notify the issuer in the event of the loss or theft of the card before the unauthorized use. Id. § 1643(a)(1)(C)- (D). Second, the issuer may only impose liability for unauthorized use that "occurs before the . . . issuer has been notified that an unauthorized use of the credit card has occurred or may occur." Id. § 1643(a)(1)(E). Finally, any liability imposed may not be "in excess of $50." Id. § 1643(a)(1)(B). The requirement that an issuer meet these conditions before imposing liability is a strict one: "Except as provided in [§ 1643], a cardholder incurs no liability from the unauthorized use of a credit card." Id. § 1643(d).

         With TILA's framework in mind, we now turn to the facts of this case.

         B. Factual Background

         As this is an appeal from a grant of a motion to dismiss, the factual allegations are taken from the operative amended complaint and are accepted as true. Trzaska v. L'Oreal USA, Inc., 865 F.3d 155, 162 (3d Cir. 2017). In June 2015, soon after William Krieger noticed his home computer had stopped working, he received a phone call from an individual identifying himself as a Microsoft employee and telling Krieger his computer had a virus and the caller needed to access the computer remotely to fix it. Krieger acquiesced, but, while the caller was accessing the computer, Krieger's daughter arrived home and, upon learning what was happening, suggested the call was "probably a scam" and disconnected the computer. App. 27. As she did so, Krieger saw his Bank of America credit card number flash across the screen.

         Alarmed, Krieger called Microsoft, only to learn that the original caller was not a Microsoft employee. Krieger then called BANA to check whether the incident had resulted in any unauthorized charges on his credit card. The call confirmed his fears: a $657 Western Union money transfer had just been purchased on his card. Although Krieger protested to BANA's representative that the money transfer was unauthorized and that his account was "compromised, " he was told that, until he received his next monthly billing statement, "nothing could be done." App. 28.

         Sure enough, when Krieger received his next BANA statement, around July 29, it included the $657 Western Union charge. Consistent with the instructions he was given earlier, he called BANA again. During that July 29 call, however, Krieger was again told BANA "could do nothing, " this time because Western Union had "already authorized the payment." App. 29. Now "no longer happy" with BANA, Krieger told the representative he wished to cancel his account entirely. App. 29. That, apparently, caused BANA to reconsider.

         Mere hours later, BANA called Krieger back with a change in plans: BANA offered to "credit [his] account while it conducted an investigation on the unauthorized use." App. 29. And within a few days, it sent Krieger a letter confirming, pursuant to that call, that it had "issued [a] credit[] to [his] account for the disputed charge[]" that "w[ould] appear on [his] monthly statement, " and that, while Western Union would "have the opportunity to review the information and provide additional documentation to support why they feel the transaction[] is valid, " BANA "consider[ed] [the] dispute[] resolved." App. 46. On Krieger's next statement, in mid-August, a ...


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