A good bank history is hard to find. Every large bank has hired some retired historian to write-up a glowing story of their bank but it's never objective.

What we do know is that credit cards are new to the law, as they are to the world. Gas companies were the first out of the gate but the use of their credit card was limited to gas and automotive products or services.

American Express brought out their generic card in 1958.

In 1967, both Chargex (later VISA) and MasterCharge (later MasterCard) came out.

Almost from the get-go, the banks licensed the right to use their respective cards to specific banks, presenting to the consumer a complicated double-front. You get your credit card from the bank but the card from a separate corporate entity.

Credit card law involves a maze of four participants: three of which feed off the consumer in extracting fees and charges.

Other than the card holder, the participants are the bank (which acts as front-man to the consumer); the credit card company (which is the bank's principal on the cardholder agreement), and the merchant (who has his/her very own agreement with the credit card company).

All are subject to statutes of general application, if there are any. Some provinces are active in protecting consumers, other prefer to let nature takes its course.

Credit CardIn British Columbia, for example, an entire division of the Business Practices and Consumer Protection Act deals with credit cards. That provincial statute implies terms into a consumer contract and prohibits (§96) a credit card from issuing a credit card to any person who has not applied for it. It also provides for a minimal set of information such as interests rates and grace periods, if any.

Credit cards are recipes for debt mismanagement. Notorious for high interest rates, credit cards are always the first on the chopping block when you meet a credit counsellor.

The legal marriage between cardholder and bank always starts with a credit application in which the consumer - but not the bank - bares it's financial all to the bank including a credit check.

Just for fun, the next time the bank asks you to allow it access to your personal financial data, why not return the favor?

Then, if qualified, the fortunate consumer gets to receive a copy of the bank or credit card agreement, often called a cardholder agreement. This pristine example of legalese is always presented to the consumer as is; dare to try to change a comma and the bank will say "no". Conversely, as a judicial consolation to the consumer, the contract, if found to be ambiguous, will be interpreted against its author according to the contra proferentem rule of contract interpretation.

Plus, as with all contracts, they are subject to being set aside if a signatory lacks legal capacity (eg. a minor) or if there are other elements which destroy the fundamentals of a contract, such as misrepresentation, undue influence or mistake.

The federal Bank Act forces banks to make minimal disclosure to the consumer:

"Where a bank issues or has issued a credit, payment or charge card to a natural person, the bank shall, in addition to disclosing the costs of borrowing in respect of any loan obtained through the use of the card, disclose to the person, in accordance with the regulations, (a) any charges or penalties ...(b) particulars of the person’s rights and obligations; (c) any charges for which the person becomes responsible by accepting or using the card; (d) at such time and in such manner as may be prescribed, such changes respecting the cost of borrowing or the loan agreement as may be prescribed; and (e) any other prescribed information, at such time and in such form and manner as may be prescribed."

Cardholder agreements differ from credit card to credit card. However, among the most important feature is liability for fraudulent use of the card.

Credit card companies stupidly require that the card holder set out a sample of their signature on the back of the card and this is often the only verification a clerk will conduct when processing it for payment. If the card is stolen or found, it is simple for the thief to copy the signature and go on a shopping spree.

Canada's Criminal Code defines the following crime:

"Every person who steals a credit card, forges or falsifies a credit card, possesses, uses or traffics in a credit card or a forged or falsified credit card, knowing that it was obtained, made or altered by the commission in Canada of an offence, or by an act or omission anywhere that, if it had occurred in Canada, would have constituted an offence, or uses a credit card knowing that it has been revoked or cancelled ...."

Check most cardholder agreements for terms of unauthorized use and you will be in for a shock. Hint: it's not the bank that takes the hit.

Mind you, there may be some fairness in that especially when a brain-dead consumer carelessly leaves her credit card lying around, or waits forever to report it as missing.

However, some jurisdictions have donned their superhero suits and come to the rescue; some, not all.

Three of the "good guys" are British Columbia, Manitoba and Alberta. The latter, at §89 of the Alberta Fair Trading Act, sets out that:

"A card holder is not liable for a debt incurred through the unauthorized use of a lost or stolen credit card after the credit card issuer receives notice of the loss or theft. A notice ... may be oral or in writing.

The maximum total liability of a card holder arising from unauthorized use of a lost or stolen credit card before the issuer receives notice ... is the lesser of $50 and the amount fixed or agreed to by the credit card issuer as the maximum amount for which the card holder is liable in the event of the unauthorized use of the card after its loss or theft."

But in Imperial Oil, a cardholder was relieved of a debt by the Alberta court. The debts arose from the use of her stolen card but the retailers who approved the transactions by the thief had made no attempt to verify the identity of the user: the card was issued to a woman and the thief was a man.

The merchant's contract with the bank or credit card company is quite irrelevant to the cardholder as issues such as delivery or condition of goods or services are not issues for the credit card company.

Barring statute or contract provisions to the contrary, a credit card payment is like cash to the merchant.

REFERENCES:

  • Bank Act, Statutes of Canada 1991, Chapter 46, §452(2)
  • Consumer Protection Act, CCSM, Chapter C200, §35.8
  • Criminal Code RSC 1985, Chapter C-46, §342
  • Fair Trading Act, RSA 2000 Chapter F-2
  • Imperial Oil v Hough 11 DLR 2d 440 (1957, ABSC)
  • Ogilvie, M., Bank and Customer Law in Canada (Toronto: Irwin Law, 2007)
  • Ogilvie, M., "Banking", Canadian Encyclopedic Digest, Volume 3, Title 14 (Toronto: Carswell, 1999)