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B O A R D OF G O V E R N O R S OF THE FEDERAL R ESERVE SYSTEM W A S H I N G T O N , a . C. 2 0 5 5 1 O FF I C E OF TH E VICE CHAIRMAN October 15, 1971 TO C H IEF EXECUTIVE OFFICERS OF A L L STATE MEM B E R BANKS Questions have been raised concerning the continued issuance of credit cards and use of related material, such as credit agreements, w h i c h contain statements of the consumer's liability for unauth o r i z e d use of his credit card w h i c h are inaccurate under the amendments to the Truth in Lending Act and Regulation Z. Sections 226.13(c) and (d) of R e g ulation Z specify conditions w hich card issuers must meet before cardholders can be held liable for up to $50 of unauthorized use. Unless these conditions are met, cardholders are not liable for any amount of unauthorized charges. There is no liability, in any event, above $50 for unauthorized use. M a n y card issuers continue to issue cards wit h such state ments as: "In case the credit card is lost or stolen, the customer shall be r e s p o nsible for any extensions of credit to anyone through use of the card until the card issuer receives wr i t t e n notice of its loss or theft." Such statements do not accurately reflect the consumer's liability. Some banks have bee n issuing credit cards containing incorrect statements regarding liability pending exhaustion of e xisting supplies or the receipt of n e w supplies. However, continued issuance of such cards after January 25, 1972 (one year from the e ffective date of.§ 226.13 of Regul a t i o n Z) w ould not appear to be justified. Cards of issuers w h o have not chosen to take the steps n e c e ssary to preserve their rights to recover up to $50 of unauthorized use of the card need not contain any representation as to the consumer's lack of liability, but should not indicate that potential liability exists when, in fact, it does not. Sincerely,
@FedFRASER