Payment Systems Foundations of a Payment Systems Analysis: 1. How does the system work? 2. How does it finalize payment? 3. How does it deal with fraud and error?
Assignment 21: The Credit-Card System
Credit card system involves four major participants 1. Purchaser that holds a credit card 2. The issuer that issues the credit card 3. A merchant that makes a sale 4. An acquirer that collects payment for the merchant
Network
Acquirer
Issuer
Send Transaction Data
Post to card
Complete Transaction
Merchant
Cardholder
Issuing bank commits to pay for purchases, thus even if the card holders ultimately fail to pay their bills the merchant still gets paid TILA applies only to consumer transactions and only to transactions under $50,000
Finality of Payment Credit cards grant a cardholder the right to withhold payment on the basis of any defense that it could assert against the original merchant Known as a chargeback Can only assert defenses before cardholder pays the bill - right to withhold payment, not right to a refund TILA 170(a) imposes a limitation on transactions that occur outside the state where the cardholder resides and more than 100 miles from the cardholder's billing address.
Assignment 22: Error and Fraud in Credit-Card Transactions Erroneous Charges To challenge a billing error under TILA, the cardholder must provide written notice to the issuer within 60 days of the date on which the creditor sent the relevant statement to the cardholder. Issuer has 30 days to respond with acknowledgement Before rejecting the cardholder's allegation the issuer must first "conduct a reasonable investigation and determining that the property or services were actually delivered as agreed. If the issuer does not accept the cardholder's allegation, the issuer must (WITHIN THE TWO-BILLING CYCLE PERIOD) give the cardholder a written explanation of the issuer's reason for not correcting the charge Finance charge can accrue against the cardholder if resolved against them
Unauthorized Charges TILA 133 limits cardholder's liability for unauthorized charges to a maximum of $50
Even if the cardholder knows the card has been stolen and do not notice
the issuer
However if the creditor can prove negligence, the cardholder may be liable for the whole amount Cardholder can notify the issuer and cut off liability even below $50 TILA 135 permits any business that issues credit cards to at least ten of its employees to accept liability for unauthorized charges without regard to TILA 133 Consumer protection provisions of TILA don't apply to businesses Issuer bears losses from unauthorized charges as long as the merchant followed the requisite procedures (verifying the signature and obtaining the appropriate
authorization for the transaction)
Assignment 23: Debit Cards Payment with a Debit Card Feature that distinguishes a debit card is that a debit card serves as an adjunct to
a checking (or savings) account For dual purpose cards, the rule of law that applies is whatever the card is used for (debit or credit) Replaces the paper check with an electronic impulse that directs the bank