"Credit Cards" that Aren't

Some retail stores and direct mail companies will push hard for you to apply for what they call a “credit card” to buy their products. But be warned: These credit cards sometimes aren’t.

The January 2000 Mississippi federal court decision Willie and Emma Oliver v. Bank One, N.A. dealt with one such scheme.

The Olivers bought a television home satellite system from a door-to-door salesman. The purchase was financed by the issuance of a “credit card” by Bank One in May 1995.

Bank One furnished disclosures pursuant to the TILA, as though the credit transaction was an opened-end or revolving credit facility…what most people think of as a credit card. But there were some differences. The limit on the card was almost exactly the purchase price; and no business other than the satellite company would accept the card.

The Olivers didn’t like the satellite system and eventually stopped making payments on the card by which they’d bought it. As a result, Bank One posted a negative item on their credit report. The Olivers sued Bank One.

Since the card couldn’t be used anywhere, the Olivers argued that the deal should have been treated as a closed-end credit purchase. This would have made returning the system easier. Their lawyers argued that Bank One’s failure to set the deal up as a closed-end transaction violated the disclosure requirements of TILA. The trial court noted:

The purpose of the TILA is to protect the consumer from inaccurate and unfair credit practices, and “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.”

The Olivers argued that Bank One’s negative credit report constituted an “action to collect the debt” and was therefore covered by the TILA. But the trial court ruled that “merely providing a negative credit report does not constitute an action attempting to collect the debt under the TILA.”

The court also ruled that the TILA’s one-year statute of limitation prevented the Oliver’s claims:

[Bank One] provided open-ended credit disclosures to the [Olivers} in connection with their purchase of a satellite dish system in May 1995, and the [Olivers] filed this cause in February 1999, nearly four years after the date of the alleged violation. As such, the dismissal of this action is further appropriate….

So, if you think you’ve got a TILA complaint, make sure to contact a lawyer within one year.

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