Agreement Reinstates Consumer"chargeback" Rights

Attorney General Spitzer today announced an agreement that will help clarify consumers' rights in failed online credit card transactions.

The agreement with American Express Co. resolves cardholders' complaints that the company had denied requests for "chargebacks" in cases where goods ordered through the online payment service PayPal were not received as promised.

"Consumers who use credit cards to purchase goods online, whether directly or through payment services, very reasonably expect that their credit card issuers will reverse the charges if the goods never arrive," Spitzer said.

"Without these crucial chargeback rights, consumers are no more protected than if they had sent cash through the mail," the Attorney General said. "My office will continue to hold credit card issuers to the letter and spirit of consumer protection and fair billing laws."

Under the settlement, cardholders who have previously sought "chargeback" credits will have the right to reassert these chargebacks. American Express will credit or refund cardholders' losses, in cases where goods were ordered but not received. The sum of these disputed charges totals over $3.2 million, some charges have already been independently resolved.

Spitzer said that American Express cooperated with his office's efforts, and praised the company for agreeing to issue refunds and recognizing the importance of this issue to its cardholders.

The issue of cardholder protection in transactions done through online payment services, such as PayPal, is a product of the Internet age and the burgeoning web traffic of sites such as eBay, which cater to small merchants and individuals. These merchants and individuals now can easily send and receive payments through such payment services, which in turn have relationships with credit card associations and issuers. This agreement is the first one to offer guidance on the obligations of credit card companies like American Express when merchants that market through online payment service fail to live up to their promises.

Under the agreement, American Express will notify affected cardholders of their rights to reinstate prior disputes for PayPal transactions, and establish a dedicated toll-free telephone line to assist and advise these cardholders. The company will pay New York State $85,000, and furnish the Attorney General with an accounting once the refunds have been issued.

The case was handled by Assistant Attorneys General Ken Dreifach of the Internet bureau and Sandy Mindell of the Consumer Frauds Bureau.