The Green Sheet Online Edition
December 22, 2008 • Issue 08:12:02
The law of fine print
Like many businesses, credit card acquiring and issuing depend on fine print. And once in a while those finely printed terms and conditions are scrutinized by the courts. Such was the case in Lonner v. Simon Prop. Group Inc. (2008 NY Slip OP 07877), which was decided by the Appellate Division of the New York Supreme Court on Oct. 14, 2008.
In this case, the court was asked to decide whether a $2.50 monthly inactivity fee on a gift card was permissible since it was disclosed only in fine print at the time of the card's issuance. The court held that the fee was not permissible due to failure by the issuer to adequately disclose the fee in the terms and conditions distributed to cardholders.
The purpose of this article is to draw some important lessons from the ruling that could help you, as ISOs and merchant level salespeople (MLSs), stay on the right side of the law. Please note that this was a New York State case; the findings may not apply in your state or to your particular situation.
First I will quote from the judgment:
"[a] section on the back of the card sleeve, entitled Do I ever expire? provided: 'An administrative fee of $2.50 per month will be deducted from your balance beginning in the seventh month from the month of card purchase.' The actual card term regarding the dormancy fees is placed on the very last page on the back of the 10 folding pages of information included with the card sleeve.
"That section, entitled Service Charges, provides, in relevant part, as follows: 'If a balance remains on the Gift Card after the sixth month, the Gift Card will be charged a $2.50 monthly service fee. The fee will be deducted automatically, starting on the seventh month after the month of purchase, from any remaining value on the card on the first day of the month until the value reaches zero.'"
The plaintiff in the case alleged the five "pages" on the back of the card sleeve that contain the terms and conditions of the card, including the dormancy fees, are in small print and in fonts materially less than that required pursuant to applicable New York business law, which provides that "[t]he terms of a gift certificate or store credit shall be clearly and conspicuously stated thereon."
The New York statute governing fine print (CPLR 4544) reads as follows:
"The portion of any printed contract or agreement involving a consumer transaction ... where the print is not clear and legible or is less than eight points in depth or five and one-half points in depth for upper case type may not be received in evidence in any trial, hearing or proceeding on behalf of the party who printed or prepared such contract or agreement, or who caused said agreement or contract to be printed or prepared."
The court went beyond the letter of the law and provided an educational summary of consumer protection laws and the way in which they should be interpreted. The court quoted an earlier judgment on fine print; following are some excerpts:
"This court has broadly construed general consumer protection laws to effectuate their remedial purposes, applying the state deceptive practices law to a full spectrum of consumer-oriented conduct, from the sale of 'vanishing premium' life insurance policies ... to the provision of infertility services. ...
"We have repeatedly emphasized that [General Business Law section 349] and section 350, its companion ... apply to virtually all economic activity, and their application has been correspondingly broad. ... The reach of these statutes provides needed authority to cope with the numerous, ever-changing types of false and deceptive business practices which plague consumers in our state. ...
"In determining what types of conduct may be deceptive practices under state law, this court has applied an objective standard, which asks whether the representation or omission [was] likely to mislead a reasonable consumer acting reasonably under the circumstances ... taking into account not only the impact on the average consumer but also on the vast multitude which the statutes were enacted to safeguard ... including the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions."
A link to the full text of the judgment in this case is posted under the Tools tab at www.adamatlas.com.
As payment professionals, most of you do not draft fine-print agreements that consumers sign. However, even though you do not draft such documents, you do solicit merchants to enter into fine-print agreements every day.
Re-read the paragraphs I just quoted, and apply the test in the italicized text (italics added by me) to all your dealings. If the agreement you are asking a merchant to sign contains provisions that would prevent the merchant from signing if he or she bothered to read the agreement, reflect on whether your form of agreement is truly serving the long-term goals of your organization.
There is, of course, a distinction between soliciting individuals (done by the gift card issuer in the case just discussed) and soliciting businesses, which do not benefit from the same set of consumer protection laws as consumers.
However, because so many businesses are small and owned by individual operators, some courts may be tempted to treat these business owners as consumers when they are held to unreasonable fine-print terms in an agreement.
Having negotiated on behalf of ISOs that were investigated by attorneys general, I believe a transparent and forthright sales process is the most durable model for ISOs and MLSs to follow.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law, at firstname.lastname@example.org or call him at 514-842-0886.
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