Credit card fraud
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Mr R ran a crash repair and spare parts business. His father was the director of the company that had previously owned the business and continued to assist Mr R with the bookkeeping for Mr R’s company which had taken over the business.
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In March 2005, two customers purchased items from the business and paid by credit card. In April, Mr R’s bank wrote to him asking him to produce the credit card sales vouchers because the credit card owners said that the use of their credit cards was unauthorised and they disputed that they had purchased goods from the business. Mr R had 10 days to provide the vouchers.
As Mr R’s father was away on holidays at the time the bank’s letters arrived, Mr R did not open the letters from the bank. There were telephone conversations between the bank and Mr R about the provision of the sales vouchers and they were eventually provided to the bank in June 2005. The bank said that it was then too late to produce the sales vouchers and that under the terms of the merchant agreement the business was liable for the disputed transactions. Transactions totalling $3,800 were charged back to Mr R’s company’s account.
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Dispute
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On behalf of Mr R’s company, Mr R’s father argued that the bank was not entitled to charge back the transactions to the business account and could not rely on the terms of the merchant agreement that the bank referred to. He argued that the only merchant agreement was the original merchant agreement between the bank and his company which did not bind the company for which Mr R was the director. He also said that the bank had given Mr R an extension of time to produce the sales vouchers and then told Mr R that it was not necessary to provide copies of the sales vouchers.
The bank provided copies of diary notes of the conversations between it and Mr R and said that it had not misled Mr R about extending the time for providing vouchers or about the need to provide vouchers. It said that the merchant agreement was an enforceable contract between the bank and Mr R’s company because since 2002 Mr R’s company operated as if the merchant agreement was in place and in 2003 Mr R’s father signed a merchant variation agreement agreeing to be bound by the merchant agreement originally established in 1997.
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BFSO’s investigation
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Mr R’s recollection of the dates of telephone conversations with the bank and the content of the telephone conversations were not consistent with the bank’s contemporaneous file notes of those conversations. In the case manager’s view the available information was insufficient to support a conclusion that the bank gave Mr R an extension of time and/or told Mr R that there was no need to send the transaction vouchers.
In relation to the question of the merchant agreement being binding on Mr R’s company, the case manager found that the conduct of both the bank and Mr R’s company was such that they were acting under the understanding that Mr R’s company used the merchant facility established by his father’s company and that Mr R’s company was therefore bound by the terms of the merchant agreement. The case manager also said that it was reasonable to conclude that by signing the merchant variation agreement in 2003, Mr R’s company was continuing with a course of conduct which confirmed an understanding that Mr R’s company was using the merchant facility and was bound by the terms of the merchant agreement. Mr R’s father had, in the case manager’s view, authority to sign the merchant variation agreement on behalf of Mr R’s company.
The case manager issued a Finding in which she found that the bank was justified in charging back the transactions to Mr R’s company because it was bound by the terms of the merchant agreement and because it had not provided the transaction vouchers within the time specified.
Mr R’s company rejected the Finding and the file was referred to the Ombudsman for a Recommendation.
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Recommendation
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The Ombudsman reviewed the case manager’s decision, the information provided by Mr R’s company and the bank. The Ombudsman upheld the case manager’s Finding and also found additional grounds that supported the bank’s right to chargeback the transactions.
The Ombudsman found that there was an alternative basis for concluding that Mr R’s company was bound by the merchant agreement. The agreement itself provided for the assignment of the agreement with the written consent of the bank. Although the bank did not provide written consent, the Ombudsman found there was an implied consent for the assignment of the merchant agreement arising from discussions Mr R had with a bank officer at the time Mr R’s company took over the business.
The Ombudsman also found that, in accordance with the merchant agreement, even if Mr R’s company had provided the vouchers to the bank within the time frame specified, or anytime within 12 months of the transaction occurring, the merchant agreement still enabled the bank to charge back a transaction where it had been justifiably disputed by the cardholder. Therefore, it was immaterial whether the bank officer had provided a two week extension or said not to provide the transaction vouchers at all.
The Ombudsman upheld the case manager’s finding
that no compensation should be paid by the bank to Mr R’s company.
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