Commercial Laws 1: Credit Card
- Credit Card
- It is defined as "any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or any thing of value on credit."•
- It is one of the Access Devices defined under special law.
- Access device
- It means any card, plate, code, account number, electronic serial number, personal identification number, or other telecommunications service, equipment, or instrumental identifier, or other means of account access that can be used to obtain money, goods, services, or any other thing of value or to initiate a transfer of funds (other than a transfer originated solely by paper instrument)."
- Open-end-credit plan
- It means a consumer credit extended on an account pursuant to a plan under which:
- the creditor may permit the person to make purchases or obtain loans, from time to time, directly from the creditor or indirectly by use of credit card, or other service;
- the person has the privilege of paying the balance; or
- a finance charge may be computed by the creditor from time to time on an unpaid balance.
1.01. Governing Law.
- Republic Act No. 8484, otherwise known as the "Access Devices Regulation Act of 1998."
- The law declares it a policy of the State to recognize the recent advances in technology and the widespread use of access devices in commercial transactions. Toward this end, the State shall protect the rights and define the liabilities of parties in such commercial transactions by regulating the issuance and use of access devices.
- New Civil Code provisions on Obligations and Contracts and Loan
- As to the relationship between the cardholder and the credit card issuer.
- Manual of Regulations for Banks (MORB) issued by the Bangko Sentral ng Pilipinas (BSP).
- The provisions of law are further implemented.
- Pantaleon v. American Express International, Inc.:
- A credit card is defined as "any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, goods, property, labor or services or anything of value on credit."
- It traces its roots to the charge card first introduced by the Diners Club in New York City in 1950. American Express followed suit by introducing its own charge card to the American market in 1958.
- In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card into the country in the 1970s. However, it was only in the early 2000s that credit card use gained wide acceptance in the country, as evidenced by the surge in the number of credit card holders then.
2. Nature of Credit Card Transactions
- Pantaleon v. American Express International, Inc.:
- To better understand the dynamics involved in credit card transactions, we turn to the United States case of Harris Trust & Savings Bank v. McCray which explains: The bank credit card system involves a tripartite relationship between the issuer bank, the cardholder, and merchants participating in the system.
- The issuer bank establishes an account on behalf of the person to whom the card is issued, and the two parties enter into an agreement which governs their relationship. This agreement provides that the bank will pay for cardholder's account the amount of merchandise or services purchased through the use of the credit card and will also make cash loans available to the cardholder.
- It also states that the card holder shall be liable to the bank for advances and payments made by the bank and that the cardholder's obligation to pay the bank shall not be affected or impaired by any dispute, claim, or demand by the card holder with respect to any merchandise or service purchased.
- The merchants participating in the system agree to honor the bank's credit cards. The bank irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant performs his undertakings such as checking the list of revoked cards before accepting the card. x x x.
- These slips are forwarded to the member bank which originally issued the card. The cardholder receives a statement from the bank periodically and may then decide whether to make payment to the bank in full within a specified period, free of interest, or to defer payment and ultimately incur an interest charge. We adopted a similar view in CIR v. American Express International, Inc. (Philippine branch), where we also recognized that credit card issuers are not limited to banks. We said: Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular, refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on credit;" and is being used "usually on a revolving basis." This means that the consumer-credit arrangement that exists between the issuer and the holder of the credit card enables the latter to procure goods or services "on a continuing basis as long as the outstanding balance does not exceed a specified limit." The cardholder is, therefore, given "the power to obtain present control of goods or service on a promise to pay for them m the future."
- Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit card company to avoid the risk of uncollectible accounts from their customers. Under this system, the establishments do not deposit in their bank accounts the credit card drafts that arise from the credit sales. Instead, they merely record their receivables from the credit card company and periodically send the drafts evidencing those receivables to the latter.
- The credit card company, in turn, sends checks as payment to these business establishments, but it does not redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the company upon its redemption of the drafts. At the end of each month, it then bills its credit card holders for their respective drafts redeemed during the "previous month if the holders fail to pay the amounts owed, the company sustains the loss."
3. Three Contracts.
- Based on the above-quoted discussion it is clear that every credit card transaction involves three intersecting contracts, namely:
- Contract of Sale between the cardholder and the merchant or business establishment that accepted the credit card;
- The loan agreement between the credit card holder and the credit card issuer; and
- The promise to pay between the credit card issuer and the merchant or business establishment.
- The issuance of a credit card allows the holder thereof to obtain, on credit goods and services from certain establishments.
- As proof that this credit is extended by the establishment, a credit card draft is issued.
- Thereafter, the company issuing the credit card will pay for the purchases of the credit cardholders by redeeming the drafts.
- The obligation to collect from the card holders and to bear the loss in case they do not pay rests on the issuer of the credit card.
- The parties in a credit card agreement for the issuance of a credit card are the:
- credit card holder
- credit card issuer
- Credit card holder
- It refers to a person who owns and benefits from the use of a credit card.
- Credit card issuer
- It refers to a bank or a corporation that offers the use of its credit card.
4.01. Credit Card Issuer-Card Holder Relationship.
- The relationship between the credit card issuer and credit card holder is contractual.
- This was explained in this wise:
- When a credit card company gives the holder the privilege of charging items at establishments associated with the issuer, a necessary question in a legal analysis is - when does this relationship begin? There an two diverging views on the matter.
- City Stores Co. v. Henderson:
- The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral and supported by no consideration. The offer may be withdrawn at any time, without prior notice, for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty - for there is no duty to continue it - and violates no rights.
- Thus, under this view, each credit card transaction is considered a separate offer and acceptance.
- Nouack v. Cities Seruice Oil Co:
- The mere issuance of a credit card did not create a contractual relationship with the cardholder
- Gray v. American Express Company:
- It recognized the card membership agreement itself as a binding contract between the credit card issuer and the cardholder.
- Unlike in the Nouack and the City Stores cases, however, the cardholder in Gray paid an annual fee for the privilege of being an American Express cardholder.
- In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the credit card issuer and the credit card holder as a contractual one that is governed by the terms and conditions in the card membership agreement.
- This contract provides the rights and liabilities of a credit card company to its cardholders and vice versa.
- The surety of the credit card holder is solidarily liable with the credit card holder.
- The surety is liable if the cardholder reneged on his or her obligations covered by the credit card account.
- The issuer can proceed singly against the surety without prejudice to the action that the surety may file or initiate against the cardholder.
- However, the surety does not incur any liability unless the credit cardholder is held liable.
- The surety cannot escape liability just because of the renewal of the card, if the liability for such renewal is expressly provided for in the contract that he or she signed.
- Ongkeko v. BPI Express Credit Card Corp:
- The surety's express undertaking was clear and concise. He solidarily obliged himself to pay the issuer all the liabilities incurred under the credit card account, whether under the principal, renewal, or extension card issued, regardless of the changes or novation in the terms and conditions in the issuance and use of the credit card.
- The surety's liability shall be extinguished only when the obligations are fully paid and satisfied. The surety is bound by the terms and conditions of his undertaking that are unambiguous and well defined; there is no room for any interpretation—only application.
- Although the surety undertaking partakes the nature of a contract of adhesion, in that the stipulations were unilaterally prepared and imposed by respondent on a take-it-or-leave-it basis, it is well settled that such a contract is "as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely."
- The surety of the cardholder can expressly undertake that any change or novation of the credit card agreement will not release such surety from his or her liability as such surety. Hence, the surety remains liable although there was novation of the agreement by upgrading the card.
- The merchant or establishment where the card is being used can also be made liable in proper cases.
- Example:
- The merchant may be made liable if it refuses to accept the card without following the prescribed procedure thereby causing humiliation to the customer.
- Mandarin Villa, Inc. v. Court of Appeals:
- The agreement between the credit card company and the merchant provides that: ''The MERCHANT shall honor validly issued credit cards presented by their corresponding holders in the purchase of goods and/or services supplied by it provided that the card expiration date has not elapsed and the card number does not appear on the latest cancellation bulletin of lost, suspended and canceled credit cards and, no signs of tampering, alterations or irregularities appear on the face of the credit card.
- The rules provide that whenever the words CARD EXPIRED flashes on the screen of the verification machine, merchant should check the credit card's expiry date embossed on the card itself. If unexpired, the merchant should honor the card provided it is not invalid, cancelled or otherwise suspended. But if expired, merchant should not honor the card.
- The credit card had an embossed expiry date which had not yet expired on the day it was wrongfully dishonored by the merchant. Hence, the Court ruled that the merchant did not use the reasonable care and caution that an ordinary prudent person would have used in the same situation and as such the merchant was guilty of negligence.
5. No Duty to Approve.
- The Supreme Court clarified that use of credit card is a mere offer to enter into loan agreements.
- Pantaleon v. American Express International, Inc.:
- Although we recognize the existence of a relationship between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the terms of the card membership agreement (customarily signified by the act of the cardholder in signing the back of the credit card), we have to distinguish this contractual relationship from the creditor-debtor relationship which only arises after the credit card issuer has approved the cardholder's purchase request.
- The first relates merely to an agreement providing for credit facility to the cardholder.
- The latter involves the actual credit on loan agreement involving three contracts, namely:
- the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card;
- the loan agreement between the credit card issuer and the credit card holder; and
- the promise to pay between the credit card issuer and the merchant or business establishment.
- From the loan agreement perspective, the contractual relationship begins to exist only upon the meeting of the offer and acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan agreements with the credit card company. Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which provides:
- Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
- The card membership agreement involved in the last cited case states that the credit card issuer "reserve[s] the right to deny authorization for any requested Charge."
- By so providing, the issuer made its position clear that it has no obligation to approve any and all charge requests made by its cardholders.
- The Court went on to explain that since the issuer has no obligation to approve the purchase requests of its credit cardholders, a cardholder cannot claim that the issuer defaulted in its obligation.
- The Court applied Article 1169 of the Civil Code, which provides "those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation."
- Thus, three requisites for a finding of default are:
- that the obligation is demandable and liquidated;
- the debtor delays performance; and
- the creditor requires judicially or extra-judicially the debtor's performance.
- Without a demandable obligation, there can be no finding of default.
- It should be noted in this connection that the original decision in the same case is to the effect that there was an obligation on the part of respondent credit card issuer "to approve or disapprove with dispatch the charge purchase.
- The Court ruled that the issuer can be in mora solvendi because there was indeed an obligation on the part of issuer to act on cardholder's purchases with "timely dispatch," or for the purposes of this case, within a period significantly less than the one hour it apparently took before the purchase was finally approved.
6. Terms and Conditions.
- The credit cardholder is bound by the terms and conditions of his or her agreement with the issuer.
- The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the terms and conditions found in the card membership agreement.
- Such terms and conditions constitute the law between the parties.
- In case of their breach, moral damages may be recovered where the defendant is shown to have acted fraudulently or in bad faith.
- However, this rule is not applicable if the bank issued a pre-approved credit card but the cardholder did not sign any credit card application form prior to the issuance of the credit card.
- The bank has the burden to prove the cardholder's agreement with the Terms and Conditions governing the use of the credit card.
- The Terms and Conditions do not bind the card holder if there is no clear showing that the cardholder was aware of and consented to the provisions of such document.
- Thus, the credit card holder is not liable to pay finance charges and interest that was not agreed upon by the parties.
- Spouses Yulo v. Bank of the Philippine Islands:
- When issuing a pre-screened or pre approved credit card, the credit card provider must prove that its client read and consented to the terms and conditions governing the credit card's use. Failure to prove consent means that the client cannot be bound by the provisions of the terms and conditions, despite admitted use of the credit card." Thus, the card holder should not be condemned to pay the interests and charges provided in the Terms and Conditions on the mere claim of the credit card issuer without any proof of the former's conformity and acceptance of the stipulations contained therein. Even if the stipulation is printed at the back of each and every credit card issued by the company, such stipulation is not sufficient to bind the cardholder to the Terms and Conditions without a clear showing that the card.holder was aware of and consented to the provisions of this document.
- The card holder is not bound by the terms and conditions of the card where it does not appear that the form agreement was sent to the card holder.
- The burden of proof to show receipt of the form rests with the issuer of the credit card.
- In connection with the foregoing, it is to be noted that Subsection X320.3 of the MORB prohibits banks and their subsidiary or affiliate credit card companies from issuing pre-approved credit cards. Appendix 103 (Appendix to Subsections X320.l and X320.3) of the MORB lists the following acts as tantamount to the act of issuing pre-approved credit cards:
- Sending of credit cards to consumers with no prior application, written request and supporting documents required for prudent credit card evaluation;
- Sending of unsolicited supplementary cards and other cards with added features which are not in replacement or substitute to an existing cardholder's initial credit card;
- Unsolicited calls by credit card issuers requesting updated information from selected clients in order to be entitled to receive credit card as a reward for his/her continued patronage of the bank's other financial product;
- Unsolicited calls by the bank to its depositors informing them that they already have a credit card from the bank's Credit Card Department due to good standing as a depositor;
- Sending of malls with credit card enclosed which will be deemed accepted upon the receipt of such card by a receiver, whether authorized or not;
- Sending to a consumer an unsolicited credit card which is deemed accepted unless a request for termination is promptly instructed by the cardholder to the credit card issuer; and
- Sending of credit cards as free offers to consumers who availed themselves of the bank's other financial products. The acts described above and other similar acts are deemed tantamount to the act of issuing pre-approved credit cards notwithstanding any contrary stipulations in the contract.
6.01. Escalation Clause.
- The rate of interest or the escalation clause expressly provided for in the credit card agreement may be sustained by the court if the same is not against the law, morals, good customs, public policy and public order.
- With respect to escalation clauses, they are not basically wrong or legally objectionable as long as they are not solely potestative but based on reasonable and valid grounds.
6.02 Acceleration Clause.
- The MORB allows acceleration clauses in credit card agreements
- The MORB provides that the bank shall have the right to demand the obligation (for credit card receivable) in full in case of default in any installment thereon if the contract between the bank and the cardholder contains an "acceleration clause."
- Acceleration clause means "any provision in the contract between the bank and the card holder that gives the bank the right to demand the obligation in full in case of default or non-payment of any amount due or for whatever valid reason."
- A card membership agreement is a contract of adhesion because its terms are prepared solely by the credit card issuer, with the cardholder merely affixing his signature signifying his adhesion to these terms.
- The prospective cardholder cannot object to any provision as it is offered on a take-it-or-leave-it basis.
- This circumstance that the contract is a contract of adhesion, however, does not render the agreement void because contracts of adhesion are as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely.
- The only effect is that the terms of the contract are construed strictly against the party who drafted it.
- These types of contracts may be binding because the party who adheres to the contract is free to reject it entirely
- Nevertheless, the provisions of the contract can also be declared void if it is too one-sided under the circumstances.
6.04.
Essentials of Credit Transactions and Insolvency Law Compliance And Breach.
- The issuer of the credit card cannot implement conditions that are not provided in the agreement.
- BPI Express Card Corp. v. Armovit:
- The issuer argued that the suspension of the card was valid because the cardholder was not able to submit a new application form.
- However, the Court ruled that the suspension was bereft of legal basis.
- It was observed that there was no agreement between the parties to add the submission of the new application form as the means to reactivate the credit card. The only condition f or the reinstatement of her credit card was the payment of the cardholder's outstanding obligation.
- The cardholder must prove any alleged breach of the issuer.
- Aznar v. Citibank:
- The cardholder was not able to prove that the issuer blacklisted the card through negligence or fraud.
- It appears that the use of the card was denied because it was already over the limit of the allowable amount that can be availed of using the card.
- The credit card issuer may also be made liable for premature cancellation of the credit card.
- BPI Express Card Corp. v. Olalia:
- The agreement provides that extension cards may be given to the cardholder's spouse or children upon the cardholder's request and upon payment of the necessary fees and the filing of the necessary application.
- Despite such express stipulation, the issuer issued an extension card to a person who fraudulently and falsely claimed to be the wife of the cardholder although the requirements for issuance of the extension card were not present.
- The issuer failed to explain why a card was issued without such requirements and why specimen signatures were not even secured. Thus, the cardholder was not made liable for the purchases made under the irregularly issued extension cards used by unauthorized party.
PROBLEM:
FE Bank issued a card to Mr. LAL and upon his request, the bank also
issued a supplemental card to his wife CSL.
In August 1988, CSL lost her
credit card and FE Bank was forthwith informed. In order to replace the lost card, CSL submitted an affidavit of loss. In cases of this nature, the bank's
internal security procedures and policy would appear to be to meanwhile
so record the lost card, along with the principal card, as a "Hot Card" or
"Cancelled Card" in its master file.
On October 6, 1988, LAL tendered a
despedida lunch for a close friend, a Filipino-American, and another guest
at a hotel restaurant. To pay for the lunch, LAL presented his card to the
attending waiter who promptly had it verified through a telephone call to
the bank's Credit Card Department. Since the card was not honored, LAL
was forced to pay in cash the bill amounting to P688.13. Naturally, LAL
felt embarrassed by this incident.
In a letter, dated October 11, 1988, LAL
demanded from the bank the payment of damages. A vice-president of the
bank, expressed the bank's apologies to LAL end explained that in cases
when a card is reported to the bank's office as lost, the bank undertakes the
necessary action to avert its unauthorized use (such as tagging the card as hot-listed), as it is always the bank's intention to protect its cardholders.
The vice president admitted that the bank failed to inform LAL about its
security policy. Furthermore, it was found that an overzealous employee of
the bank did not consider the possibility that it may have been LAL who was
presenting the card at that time (for which reason, the unfortunate incident
occurred).
The vice president likewise wrote a letter to the Manager of the
restaurant to assure the latter that LAL and CSL were "very valued clients"
of the bank and the manager wrote back to say that the credibility of private
respondent had never been "in question." Is the bank liable to LAL and CSL
f
or moral and exemplary damages?
No, the bank is not liable. While concededly, the bank was remiss in
personally informing LAL of the card's cancellation, such negligence
was not so gross to amount to bad faith or malice. There was no
intent to cause harm. Bad faith or malice is necessary to award moral
damages. In the same manner, in contracts, exemplary damages can
be awarded if the defendant acted in wanton, fraudulent, reckless,
oppressive or malevolent manner. These circumstances are not
present in this case.
However, the bank's failure, even if inadvertent, to honor the
credit card should entitle LAL to a measure of damages under Article
2221 of the New Civil Code, which is nominal damages. (Far East
Bank and Trust Company v. The Hon. Court of Appeals, G.R. No.
108164, February 23, 1995)
6.05. Credit Limit.
- The credit card holder is bound by the agreed limit of the amount that can be purchased using the card.
- The credit limit is binding on the cardholder.
- Mere additional deposit of an additional amount with the issuer does not amount to novation and does not have the effect of increasing the credit limit.
- Aznar v. Citibank:
- The Supreme Court accepted the explanation that the deposit may be considered as advance payment which can justify the approval of the purchases even if the price is beyond the credit limit.
- Section X320 of the MORB provides that Banks or their subsidiary/affiliate credit card companies shall formulate criteria or parameters for suspension, revocation and reactivation of the right to use the card and shall include in their contract with cardholders a provision authorizing the issuer to suspend or terminate its effectivity, if circumstances warrant.
- It can be validly provided in the contract that the card holder agrees not to exceed the approved credit limit and to an automatic suspension of the credit card privileges if the limit is exceeded.
- It is also valid to provide in the agreement that "any credit card with outstanding balances after thirty days from original billing/statement shall automatically be suspended."
- BPI Express Card Corp. v. Olalia:
- The fact that the card holder issued postdated checks will not cause the lifting or stop the suspension because of the basic rule that delivery of such instrument is not payment.
- The cardholder cannot pass the blame to the issuer for not notifying him of the suspension of his card b e cause the agreement contained a stipulation that the issuer could automatically suspend a card whose billing has not been paid for mor e than thirty days.
- The terms and conditions of the agreement do not provide that notice is necessary before suspension may be affected.
E Corp., a credit card company, issued a credit card to Mr. JC, a
businessman. The Credit Card Agreement between E Corp. and Mr. JC
provide s: " ... charges incurred including charges incurred through the use
of the extension CARD/S, if any in excess of credit limit shall become due
and demandable and the credit privileges shall be automatically suspended
without notice to the CARDHOLDER."
For dollar transactions, Mr. JC is
required to open a dollar account with a minimum deposit of $3,000.00 and the balance of the said dollar account shall serve as the credit limit.
The Credit Card Agreement likewise provides that: "The issuer shall
likewise have the option of reinstating the cardholder's privileges which
have been terminated for any reason whatso ever upon submission of a new
accomplished application form if required by the issuer and upon payment
of an additional processing fee equivalent to annual fee."
In April 1986, Mr. JC, together with some reputable business friends
and associates, went to Hongkong for business and pleasure trips. Specifically
on April 30, 1986, Mr. JC accompanied by his friend, Mr. ED went to a store
to purchase high-end t-shirts, jackets, a pair of shoes, etc. The cost of his
total purchase amounted to US$523.00. He used his credit card to effect
payment thereof on credit. He then presented and gave hie credit card to
the saleslady who promptly referred it to the store cashier for verification.
Shortly thereafter, the saleslady, in the presence of Mr. JC'e friend, Mr. ED
and other shoppers of different nationalities, informed him that hie Visa
card was blacklisted. Mr. JC sought the reconfirmation of the statue of his
Visa card from the saleslady, but the latter simply did not honor it and even
threatened to cut it into pieces with the use of a pair of scissors.
Deeply,
embarrassed and humiliated, and in order to avoid further indignities, Mr.
JC paid cash for the Gucci goods and items that he bought. It turned out
however that prior to the incident in question Mr. JC made credit purchases
f
rom August to September 1985 amounting to US$14,226.12, while only
having a deposit of US$3,639.00 in his dollar account thus exceeding his
credit limit; these purchases were accommodated by the E Corp. on the
condition that the amount needed to cover the same will be deposited in a
f
ew days but Mr. JC failed to make good on his commitment.
Later, Mr. JC
likewise failed to make the required deposit on the due date of the purchases
and as a consequence thereof, his card privileges for dollar transactions
were suspended. It was only four months later -on January 31, 1986, that
Mr. JC deposited the sum of P14,501.89 in his dollar account to cover his
purchases but the said amount was not sufficient to maintain the required
minimum dollar deposit of $3,000.00 as Mr. JC's dollar deposit stood at only
US$2,704.94 after satisfaction of his outstanding accounts. A day before
he left for Hongkong, Mr. JC made another deposit of US$14,000.00 in hie
dollar account but did not bother to request the E Corp. for the reinstatement
of his credit card privileges for dollar transactions, thus the same remained
under suspension. Is E Corp. liable for not not i f y i ng Mr. JC of the continued
suspension of the card?
A
: No, E Corp. is not liable. Given the express provision on automatic
suspension without notice, there is simply no basis for holding E Corp.
negligent for not notifying Mr. JC of the suspended status of hie credit
card privileges. Although Mr. JC made a deposit of US$14,000.00 to
his dollar account with E Corp., the sad reality, however, is that he
never verified the status of his card before departing for Hongkong,
much less requested petitioner to reinstate the same. And, certainly,
Mr. JC could not have justifiably assumed that E Corp. must have reinstated his card by reason alone of his having deposited
US$14,000.00 a day before he left for Hongkong. As issuer of the card,
E Corp. has the option to decide whether to reinstate or altogether
terminate a credit card previously suspended on considerations which
the E Corp. deemed proper, not the least of which are the cardholder's
payment record, capacity to pay and compliance with any additional
r
equirements imposed by it. That option, after all, is expressly
embodied in the Credit Card Agreement. (Equitable Banking Corp. v.
Calderon, G.R. No. 156168, December 14, 2004)
6.07. Interest and Charges.
- The agreement of the parties may include a stipulation on interest, finance charges and penalty charges.
- Finance Charges
- It represent the amount to be paid by the debtor incident to the extension of credit such as interest or discounts, collection fees, credit investigation fees, and other service charges;
- Penalty Charges
- It means such amount, in addition to interest, imposed on the credit card holder for non-payment of an account within a prescribed period;
- Although there is no more usury in this jurisdiction, the Court may declare null and void the interest and charges that are unconscionable and exorbitant.
- If the stipulated amounts are not exorbitant, the Court will sustain the amounts agreed upon by the parties.
- Section 320.950 of the MORB provides that: "no late payment or penalty fee shall be collected from cardholders unless the collection thereof is fully disclosed in the contract between the issuer and the cardholder."
- However, "late payment or penalty fees shall be based on the unpaid minimum amount due or a prescribed minimum fixed amount."
- Section 320.9 further provides that said "late payment or penalty fees may be based on the total outstanding balance of the credit card obligation, including amounts payable under installment terms or deferred payment schemes, if the contract between the issuer and the cardholder contains an 'acceleration clause' and the total outstanding balance of the credit card is classified and reported as past due."
PROBLEMS:
The agreement between the cardholder and the card issuer contains
pars. 7 and 15 which read:
7.
MERCHANT AFFILIATES. The issuer is not responsible
if the Card is not honored by any merchant affiliate for any reason.
Furthermore, the cardholder will not hold the issuer responsible for
any defective product or service purchased through the Card.
15.
LIMITATION OF LIABILITY. In any action arising from
this agreement or any incident thereto which the cardholder or any
other party may file against the issuer, the issuer's liability shall not
exceed One Thousand Pesos (P1,000.00) or the actual damages proven,
whichever is lesser.
Are the provisions valid?
No, the provisions are not valid. It is settled that contracts between
cardholders and the credit card companies are contracts of adhesion,
so-called, because their terms are prepared by only one party while
the other merely affixes his signature signifying his adhesion thereto.
In this case, par. 7 is invalid because while it is true that the issuer
may have no control of all the actions of its merchant affiliates, and
should not be held liable therefor, it is incorrect, however, to give
it blanket freedom from liability if its card is dishonored by any
merchant affiliate for any reason. Such phrase renders the statement
vague and as the said terms and conditions constitute a contract of
adhesion, any ambiguity in its provisions must be construed against
the party who prepared the contract, in this case the issuer.
Par. 15 which limits the credit card issuer's liability to Pl,000.00
or the actual damages proven, whichever is lesser, is also invalid. Such
stipulation cannot be considered as valid for being unconscionable
as it precludes payment of a larger amount even though damage
may be clearly proven. The Court is not precluded from ruling out
blind adherence to the terms of a contract if the attendant facts and
circumstances show that they should be ignored for being obviously
too one-sided. (Aznar u. Citibank, N.A., C.R. No. 164273, March 28,
2007)
Respondent Dr. Antonio Novak Feliciano is the holder of PCI Bank
Mastercard issued and managed by petitioner Bankard, Inc. An
extension of the card was issued to his wife, Mrs. Marietta N. Feliciano.
On June 19, 1995, respondent used his card to pay a breakfast bill in
Toronto, Canada. The card was, however, dishonored for payment.
Respondent's guests, Dr. Bellaflor Bumanlag and three other Filipino
doctors based in Canada, had to pay the bill. Respondent immediately
called the US toll-free number of petitioner to inquire on the cause of
dishonor. He was informed that the reason was the nonpayment of
his last billing statement. Respondent denied that he failed to pay, .his credit card again. Respondent likewise called his secretary in
the Philippines to confirm the fact of payment, and requested her to
advise petitioner's office in Manila. The following day, respondent
met with Dr. Bumanlag to reimburse her for the cost of the breakfast
the previous day. Thereafter, Dr. Bumanlag accompanied the
respondent to the Eddie Bauer Fairview Mall, a prestigious mall in
Toronto, where the latter bought several dressing items. Respondent
presented his card for payment. Again, the card was dishonored to
the embarrassment of the respondent. Worse, the manager of the
department store confiscated the card in front of Dr. Bumanlag and
other shoppers. Respondent protested but the manager called security
and forcibly retained the card. To end the commotion that ensued,
respondent just asked for a receipt for the confiscated card.
On October 5, 1995, respondent filed a complaint against
petitioner Bankard, Inc. and Mastercard International for breach
of contractual rights and damages. Respondent alleged that he is a
holder in good standing for more than 10 years and that petitioner and
Mastercard International reneged on their agreement by suspending
the services of the card without notice to him. Petitioner alleged that
it suspended the privileges of respondent's credit card only after it
received the fraud alert from Indonesia, and after its fraud analyst,
Mr. Lopez, tried to contact both the respondent and his wife at his
clinic and at home.
Is the petitioner liable for damages?
Yes, the petitioner is liable. Although at first blush, bad faith or malice
appears not to be attributable to petitioner, however, the petitioner's
efforts at personally contacting respondent regarding the suspension
of his credit card fall short of the degree of diligence required by the
circumstances.
Petitioner received the fraud alert on June 13, 1995. The
following day, petitioner's fraud analyst tried to call up respondent at
his clinic and at home, to no avail. Apart from this attempt, however,
no further effort was exerted to personally inform respondent about
the cancellation of his card. Petitioner had more than enough time
within which to do so considering that it was not until four days later
or June 18, 1995 that respondent left for Canada. But, petitioner's
Mr. Lopez contented himself with just leaving a message with an
unidentified woman in respondent's house for the latter to return his
call Before receiving the return call, the card had been blocked on
June 15, 1995. To be sure, a notice of card account blocking was sent
t
o respondent. However, by the ordinary course of mail, the notice
was not expected to reach respondent for several days yet. Despite the
possibility that respondent or his wife may have occasion to use their
credit cards, petitioner's fraud analyst made no further attempt to contact and warn them. Thus, respondent left for Canada on June 18,
1995 armed with his card but totally unaware that the card had been
blocked three days previously, and that he was not to use the same.
Petitioner claims that it suspended respondent's card to protect
him from fraudulent transactions. However, while petitioner's motive
bas to be lauded, petitioner was not equally zealous in protecting
respondent from potentially embarrassing and humiliating situations
that may arise from the unsuspecting use of his suspended card.
Considering the widespread use of access devices in commercial and
other transactions, petitioner and other issuers of credit cards should
not only guard against fraudulent uses of credit cards but should
also be protective of genuine uses thereof by the true cardholders.
In
the case at bar, the duty is much more demanding for the evidence
shows that respondent is a credit cardholder for more than 10 years
in good standing, and has not been shown to have violated any of the
provisions of his credit card agreement with petitioner. Considering
the attendant circumstances, we find petitioner to have been grossly
negligent in suspending respondent's credit card. To reiterate, moral
damages may be awarded in a breach of contract when the defendant
acted fraudulently or in bad faith, or is guilty of gross negligence
amounting to bad faith. (Bankard, Inc. u. Feliciano, C.R. No. 141761,
July 28, 2006)
7.
Loss of Credit Card.
- The law provides that in case of loss of an access device, the holder thereof must notify the issuer of the access device of the details and circumstances of such loss upon knowledge of the loss.
- Full compliance with such procedure would absolve the access device holder of any financial liability from fraudulent use of the access device from the time the loss or theft is reported to the issuer.
- A provision requiring the cardholder to wait until the credit card company has notified all its member-establishments before the cancellation takes effect is invalid for being contrary to public policy.
The contract between cardholder and the issuer of the credit card
contains the following stipulation:
"In the event the card is lost or stolen, the cardholder agrees
to immediately report its loss or theft in writing to the ISSUER ...
purchases made/incurred arising from the use of the lost/stolen card
shall be for the exclusive account of the cardholder and the cardholder
continues to be liable for the purchases made through the use of the
lost/stolen card until after such notice has been given to the ISSUER
and the latter has communicated such loss/theft to its member
establishments."
Thus, the agreement required two conditions before the
cardholder could be relieved of responsibility from unauthorized
charges:
- the receipt by the card issuer of a written notice from the card holder regarding the loss; and
- the notification to the issuer's accredited establishments regarding such loss.
Are the conditions
valid?
The first condition is valid while the second condition is invalid.
Prompt notice by the cardholder to the credit card company of the
loss or theft of his card should be enough to relieve the former of any
liability occasioned by the unauthorized use of his lost or stolen card.
The stipulation which still requires the cardholder to wait until the
credit card company has notified all its member-establishments, puts
the cardholder at the mercy of the credit card company which may
delay indefinitely the notification of its members to minimize if not
t
o eliminate the possibility of incurring any loss from unauthorized
purchases. Moreover, the credit card company may for some reason
fail to promptly notify its members through absolutely no fault of the
cardholder. To require the cardholder to still pay for the unauthorized
purchases after he has given prompt notice of the loss or theft of his
card to the credit card company would simply be unfair and unjust.
Such stipulation clearly runs against public policy. The stipulation in
question is just as repugnant to public policy because the effectivity
of the cancellation of the lost card rests on an act entirely beyond the
control of the cardholder. Worse, the phrase "after a reasonable time"
gives the issuer the opportunity to actually profit from unauthorized
charges despite receipt of immediate written notice from the
cardholder.
Under such a stipulation, the cardholder could have theoretically
done everything in his power to give the credit card company the
r
e
quired written notice. But if the credit card company took a
"reasonable" time (which could be indefinite) to include the card in
its cancellation bulletin, it could still hold the cardholder liable for
whatever unauthorized charges were incurred within that span of
time. This would be truly iniquitous. (Acal v. Philippine Commercial
Credit Card, Inc., G.R. No. 135149, July 25, 2006)
8. Duty to Disclose to Applicant.
- Section 4 of Republic Act No. 8484 provides that any application to open a credit card account for any person under an open-ended credit plan or a solicitation to open such an account, either by mail, telephone or other means, shall disclose in writing or orally, as the case may be, the following information:
- Annual Percentage Rate Each annual percentage rate of interest on the amount of credit obtained by the credit card holder under such credit plan. Where an extension of credit Is subject to a variable rate, the fact that the rate is variable, and the annual percentage rate In effect at the time of the mailing.
- Where more than one rate applies, the range of balances to which each rate applies.
- Annual and other Fees
- Any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of a credit card, including any account maintenance fee or any other charge imposed based on activity or inactivity for the account during the billing cycle.
- Any minimum finance charge imposed for each period during which any extension of credit which is subject to a finance charge is outstanding.
- Any transaction charge imposed in connection with use of the card to purchase goods or services.
- Any fee, penalty or surcharge imposed for the delay in payment of an account.
- Balance Calculation Method - the name or a detailed explanation of the balance calculation method used in determining the balance upon which the finance charge is computed.
- Cash Advance Fee - any fee imposed for an extension of credit in the form of cash.
- Over-the-Limit-Fee - any fee imposed in connection with an extension of credit in excess of the amount of credit authorized to be extended with respect
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