By Darren Smith, Weekend Contributor
A ruling by Division Three of the Washington State Court of Appeals might be worth reviewing for those not only in the state but elsewhere as the opinion demonstrates an interpretation of the federal Truth in Lending Act governing credit card liability of consumers. It could also affect at least in Washington whether to charge a defendant with a financial crime or the possession of stolen property due to a Federal Reserve Board opinion that could affect charging elements resulting from the theft of a CardLock access device.
In Connell Oil, Inc. v. McConnell-Johnson, Appellants “The Marital Community of Erik and Jackie McConnell Johnson” appealed a trial court ruling favorable to plaintiff Washington Corporation “Connell Oil, Inc.” after the oil company demanded damages and attorney fees amounting to $34,649.68 resulting from the fraudulent use of the Johnson’s petroleum CardLock access card after the device was stolen from one of Mr. Johnson’s farm vehicles. Defendants claimed that they were not fully liable for the unauthorized charges under the federal Truth in Lending Act which ordinarily protects consumers from fraudulent credit card charges.
The Court “conclude[d] the trial court did not err when it ruled that the stolen cardlock was not a credit card for purposes of TILA and entered judgment in favor of Connell Oil.” Connell Oil received an award of attorney and legal fees as it was the prevailing party.
From the slip opinion:
“Since 2009, Erik Johnson has been a customer of Connell Oil. On July 27, 2014, Mr. Johnson’s wallet was stolen from his farm vehicle. The next day, Mr. Johnson began contacting issuers of his stolen credit and debit cards. On July 31, 2014, Mr. Johnson
telephoned Connell Oil. There is a factual dispute whether Mr. Johnson asked Connell
Oil to cancel his stolen petroleum card or simply ordered one or more cards. But there is
no factual dispute that the cardlock agreement required cancellation to be in writing, and
Mr. Johnson never requested in writing that his stolen petroleum card be canceled.
Around September 8, 2014, Connell Oil called Mr. Johnson and notified him that it was terminating his account because of suspicious activity. Because Mr. Johnson had kept his PIN and petroleum card together in his wallet, the thief was able to steal $34,649.68 worth of fuel during the six weeks before the card’s cancelation. Although Connell Oil had invoiced Mr. Johnson three times since his wallet was stolen, Mr. Johnson did not detect the fuel theft. Mr. Johnson explained to Connell Oil that he was too busy during harvest to open its invoices. The parties were unable to resolve the dispute.
Connell Oil served Mr. Johnson and his wife, Jackie McConnell Johnson, with a complaint alleging that the Johnsons were liable for $34,649.68 in stolen card charges, plus interest, costs, and attorney fees. The Johnsons then filed an answer with affirmative defenses, including limitations on cardholder liability for lost or stolen cards as well as counterclaims under TILA, Washington’s Consumer Protection Act, chapter 19.86 RCW, and negligence.”
…
“After discovery, the Johnsons filed a motion for partial summary judgment and
Connell Oil filed a cross-motion. The court ruled that the petroleum card issued by
Connell Oil was not a credit card as contemplated by TILA. The court held that the
Johnsons’ defenses under TILA were inapplicable, granted Connell Oil’s motion for
summary judgment, and dismissed the Johnsons’ affirmative defenses and counterclaims.
The court entered judgment in favor of Connell Oil for the unpaid petroleum charges, plus interest, costs, and reasonable attorney fees in accordance with the cardlock agreement.”
~+~
The court based much of its decision upon adopting the United States Federal Reserve Board opinions used to effectuate the purpose of the Truth in Lending Act as delegated by Congress and under Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 238, 124 S. Ct. 1741, 158 L. Ed. 2d 450 (2004) and Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100 S. Ct. 790, 63 L. Ed. 2d 22 (1980).
The “FRB has promulgated a detailed and comprehensive set of rules known as “Regulation Z,” which is codified at 12 C.F.R. § 226.1(a). The staff of the Division of Consumer and Community Affairs to the FRB issues official interpretations of Regulation Z, referred to as commentary”. The rules in essence refer to both the familiar, and well-known consumer protection affording credit card holders a maximum liability of Fifty Dollars for unauthorized usage of stolen credit cards, yet in the case of petroleum cardlock cards, which is the heart of the Connell case, the FRB opines that such a card is not a credit card for the purpose of the Truth in Lending Act:
However, an official commentary provides:
[A] credit card does not include, for example
. . . .
. . . [a]ny card . . . that is used in order to obtain petroleum products for
business purposes from a wholesale distribution facility . . . and that is
required to be used without regard to payment terms.12 C.F.R. pt. 226, supp. I, subpt. A, § 226.2(a)(15)(2)(ii)(B)
We should first understand what a CardLock device is and why it was considered to not be a Credit Card as defined under the TILA.
In the Johnson’s and many others who received petroleum products through the use of this technology, generally the system began with a KeyLock device, which then evolved into an OpticalLock device–a credit card sized strip of plastic having holes punched within a matrix that indicated ownership and access numbers, to a card having a magnetic strip or chip along with a PIN code. It is more of a key than a standard credit card, yet one could argue that it is simply a different number encoding protocol that serves the same function.
The Johnson’s stated that they effectively had a credit card like agreement since as is the case with a credit card account, they charged purchases onto an account and were billed. Yet the court countered that irrespective of whatever payment agreement between Connell and their marital community, the FRB explicitly stated in its opinion that the type of CardLock system used for the purchase of petroleum products did not fall within the maximum liability protections of the TILA, as noted by Division III:
“Commentary (B) itself states it makes no difference if the card permits a business customer to accumulate a balance and pay interest on that balance.”
The opinion stated that the Johnson’s commingled their personal and business purchases when they used the CardLock. There might still remain a question if the CardLock device was only used for personal usage and not on a business account. Whether or not a personal account is offered by the petroleum merchant could be a factor in any future tests in the courts.
For the consumer this case does point out a few concerns that should give pause to any consumer of petroleum products who uses this type of device whether business or for personal use.
First, according to the Opinion, the Johnson’s made a costly error in that they wrote on the CardLock card the PIN number associate with the account. This effectively nullified any security associated with the account and facilitated its unauthorized use.
Second, Connell reportedly billed its CardLock customers twice monthly. Despite the fact that the unauthorized usages could have been quickly noticed, Mr. Johnson stated that this occurred during his busy harvest time and he did not read the invoices as they came in. Again, the failure to act using prudent oversight led to continuing losses.
Third, though there was a dispute on whether the Johnson’s had properly cancelled their card after it was discovered that fraudulent charges continued to be made, the card agreement stated that cancellations must be in writing. The Johnsons did not perform this until much later.
Lastly, if it can be held that a CardLock system does not afford the consumer the same fifty dollar maximum liability for fraudulent usage, the consumer should exercise extra caution with security and billing for this type of account.
The ruling should also cause prosecutors and law enforcers to re-evaluate how possession of stolen petroleum CardLock devices are charged in the courts. In my opinion this is something to consider:
For Washington State, traditionally possession of stolen credit cards may be prosecuted under RCW 9A.56.320(3) (Financial fraud—Unlawful possession, production of instruments of.).
“A person is guilty of unlawful possession of a personal identification device if the person possesses a personal identification device with intent to use such device to commit theft, forgery, or identity theft. “Personal identification device” includes any machine or instrument whose purpose is to manufacture or print any driver’s license or identification card issued by any state or the federal government, or any employee identification issued by any employer, public or private, including but not limited to badges and identification cards, or any credit or debit card.”
Yet if the FRB Opinion regarding petroleum CardLock devices is to be imported into the common law, the prosecution for these cases might want instead to consider RCW 9A.56.160 (Possessing stolen property in the second degree).
“(1) A person is guilty of possessing stolen property in the second degree if:
(a) He or she possesses stolen property, other than a firearm as defined in RCW 9.41.010 or a motor vehicle, which exceeds seven hundred fifty dollars in value but does not exceed five thousand dollars in value; or
(b) He or she possesses a stolen public record, writing or instrument kept, filed, or deposited according to law; or
(c) He or she possesses a stolen access device.
(2) Possessing stolen property in the second degree is a class C felony.”
I believe that a non-credit card CardLock should be considered an Access Device for the purpose of establishing the requisite crime element. Access Device is defined under RCW 9A.56.010 as:
“Access device” means any card, plate, code, account number, or other means of account access that can be used alone or in conjunction with another access device to obtain money, goods, services, or anything else of value, or that can be used to initiate a transfer of funds, other than a transfer originated solely by paper instrument.”
While my interpretations do not constitute legal advice, I believe prudence favors involved parties to consider the significance of the Division III ruling.
By Darren Smith
Source: Connell Oil v. Johnson
The views expressed in this posting are the author’s alone and not those of the blog, the host, or other weekend bloggers. As an open forum, weekend bloggers post independently without pre-approval or review. Content and any displays or art are solely their decision and responsibility.
As Trump said during the S&L debacle,”Cash is king.” Once I reverted back to cash about seven or eight years ago, I discovered just how much fun I had been missing out on by having gone cashless, mindlessly buying into the centralization idiocy of those bent on controling our lifestyle, speech, and guns, not to mention ruining our lives with over-taxation, open borders, freebies for everyone, and purchase surveillance that is only possible with cashless economies.
Not only that, every other consumer in front of me at the cash register either doesn’t know how to use his newfangled card, or there’s a computer glitch, or the transaction has been denied, so there I am, holding my cash, waiting to get the hell out of the store, but can’t because I’m held up by technology. When it’s finally my turn to pay, I’m out of there in a flash because I have CASH. (I do make an exception at gas stations because I do not want to go inside and get behind someone buying beer with a credit card.)
The Unabomber said that technology was doing in mankind, and how right the man is. The mainstream media, bagmen for Liberals and control freaks, know that technology, like open borders, is crucial for their survival, so they refuse to publish anything anti-technology, such as an excellent article about the Unabomber that foretold how technology in the hands of dangerous Liberals could decide an election (think tech giants like Google, Facebook, Twitter, and other liberal social platforms).
I no longer ask certain neighbors and friends if there’s anything I can pick up for them when I go shopping because, 9 times out of 10, they don’t have money in their pockets to reimburse me when I return (major shopping is 2 hours from our community, so it’s considered neighborly courtesy to help with the hassles of shopping). Then, after like a couple of months when I finally have to use a pair of pliers to collect what I’m owed, they get mad. These are invariably the same people who go shopping regularly but never ask if others need anything.
Go to the bank and get $1,000 worth of twenties! You’ll not only discover just how much more fun it is, but you’ll also save yourself the hassle of having to balance all those statements each month. Perhaps the greatest benefit of using cash is that you can’t ever be a victim like Johnson. Imagine being on a trip in Europe, for example, only to discover that all of your accounts have been canceled after being hacked. And there you are, as helpless as a baby needing a new diaper, all because you had traded your freedom for convenience served up by evil Liberals. And you’ll never have to pay interest or another bank fee if you forget to pay on time. You’ll also realize just how much of a pain in the *ss you’ve been for all the shoppers that have had to wait in line behind you at the cash register.
How devastating for this couple.
First, when a company that issues an access device requires cancellation requests to be made in writing, it creates a situation in which a device known to be stolen can continue to be used for this much slower method. I understand about cancelling entire accounts in writing, but reporting a stolen card is in a different ball field. Merely calling and reporting it stolen is more efficient.
I agree that the couple contributed to the problem by writing their PIN on the card. If the PIN was company issued and difficult to remember, then people tend to have to write them down and carry it with them, or use a phone app. I don’t know if he was allowed to set the PIN. In addition, there was a delay while he did not open the invoices. Harvest time is grueling, and most people wouldn’t be up to the task.
This loss was hard on both the couple and the company, but the company shifted all of the blame on the couple. As a result, their reputation suffers.
These thieves are the ones who win. They steal credit card info, steal up a storm, and they never seem to get caught. The company and the cardholder are left holding the bag. When companies write off all these losses, the cost of doing business goes up, which they pass on to consumers. If a consumer doesn’t catch the theft early enough, they are stuck with the bill. This is true for debit cards, too.
In this case, was the thief caught, or did the theft occur so long ago that security footage at the fuel stations was erased and recorded over already?
I was a Store Detective who specialized in Credit Frauds. This case appears unusually complicated. Sometimes victims of fraud fail to report said frauds in a timely manner which throws suspicion on them. I’m not positive if that’s the issue here. But it could be a component.
Peter Hill – I know exactly what you are talking about. I used my debit card at an ATM I never use and because of the unfamiliarity, etc., including my wife yelling at me to get the money and get in the car, I left the debit card in the machine. About 2 weeks later I get a call from my bank wondering when I am going to make a payment on card. It seems someone had wiped out my account and run up an additional $2000.00 in charges. What makes this even more bizarre is that all the purchases were made at the same Circle K. Did you know you can buy $600 worth of stuff at the Circle K without using your pin? I didn’t. I do not sign the backs of my cards, I write “Ask for identification.” and I never have the pin attached to the card.
In this case, the guy put the pin on the Cardlock, did not read his bills and when he did, he did not send a certified letter to the company immediately. This is one of those cases where I do agree with the court. I do not like to, however he was his own worst enemy.
Paul, your experience sounds like a good reference to put this case in perspective.
i just found that the cable company was charging one of my cards two bucks fifty a month, different days of the month, for many months, it sneaked past me on a cc and I just noticed it how or what they were charging me for i have no idea. I spent a half hour wasted on the phone trying to call them and ask but forget it, you always get a computer and then excuse me but when you get a person their english is rough like Filipines or Hindustan, it’s always a hassle and never satisfactory
first they can for the secretaries and moved it all to phone centers
then the AI gutted the phone centers
now there is not much customer service at all
so i just cancelled the card. i was looking harder than usual because somehow my card got ripped off somewhere else and people were charging it at gas stations where i Never go. that was an easy one for the fraud programs to spot and they did.
cashless society: a major screw job waiting to happen every single day
count me out
The credit card industry was slack in implementing strong countermeasures against stolen cc use, and wrote off hundreds of billions of such losses as tax deductions over the decades. I think based on current standards of cc security, the issuing bank is liable for any fraud loss that could be prevented by standard, established security countermeasures, on the theory of contributory negligence / product safety. I hope this goes to WA Supreme Court for reversal.
I agree that Johnson was totally irresponsible by not monitoring his account and by recklessly sharing his pin number.
However, I also believe the oil company was equally irresponsible for not detecting the fraud earlier, like within days, as surely indicated by random purchases. For example, my credit card company called me a few years ago, asking if I was making purchases in Houston, Texas, more than a thousand miles from my usual locale for using the card, a city I had not been to in years. The credit card company’s computer detected the fraud as quickly as insects detect porch lights. Where was the oil company’s computer, if they even had one at all?
Then there’s the issue of going after the perp, if anyone bothered at all, who more than likely got a free pass because, well, you can’t squeeze blood out of a turnip. Given today’s surveillance technology, the perp should have been in prison by the time he had made $100 worth of purchases. The FBI just apprehended a mail-bomber within a few days, and law enforcement can’t or won’t do a damn thing about epidemic credit-card and identity fraud.
Years ago I stopped doing all online transactions with financial institutions, sending estoppel letters to each, notifying that if there was any online activity, it couldn’t be me because I had ceased using the internet to conduct business. In other words, in the same way that anyone can put a lock on their credit reporting agency, I put locks on all of my institutions that could only be opened with a letter in writing from me.
Fraud is out of control today because consumers are simply too lazy to do anything to protect themselves. They buy protection from companies like LifeLock, recklessly assuming that they can be as careless as they want because they have a company that will bail them out if they get in trouble. Not so. Tens of thousands of consumers with fraud insurance end up holding an empty bag because they failed, like Johnson, to act prudently. These companies have so many complaints, their only option to stay alive is to advertise non stop. In this way they are not unlike Democrats, who are losing votes daily nationwide, so they must rely on border jumpers to stay in office.
Finally, what kind of imbecile signs up with a fraud-detection company, turning over all personal financial institution account numbers and pins and everything else, centralizing everything at a single choke point, which in turn could just as easily be hacked as have credit reporting agencies, Facebook, Yahoo, and Google? Centralization of anything spells doom. The Russians learned that the hard way when centralization bit the Soviet Union in the *ss.
Coincidental timing – I was discussing this very issue with my mother last night. She lives in northern CA and her car is in the shop. She mentioned that she left her petroleum cardlock in the console, but the PIN is something she has memorized and is not written down. I told her she likely doesn’t have anything to worry about, but could call the company to make sure it hasn’t been used, and verify it once again when she gets her car back. I feel bad for the farmer, but not opening your bills isn’t much of a defense. His wife could have taken care of bill payments, and everyone knows that cancellations, to be effective, must be in writing. Even when I cancel an account by telephone, I always follow-up with an email or brief letter.
This is another of the ‘It’s our policy…’ scenarios. It is more than likely that Connell Oil is not in a competitive situation and designs their policy for just this ‘procrastination’. Health care insurance companies are the worst. They don’t ‘back date’ reimbursements regardless of whether or not the treatment was covered or not. If the doctor’s office makes a clerical error on an approved treatment, they simply turn their backs. Some nimrod in Texas reels off the ‘policy’. The farmer surely had the time but the requirement for the card to be cancelled in writing is obviously an attempt to take advantage by Connell. This extends the time between when the card goes missing and the cancellation process is done. This gives Connell the opportunity to design the results of the process as well. The money lost may have been the result of the farmer’s procrastination but the system is rigged to the advantage of Connell, regardless of this procrastination.
I would agree that possession of a stolen Cardlock should be treated as a major felony and identity theft.