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Exercise 14

Retail Installment Sales

Gene and Jean Mean are a married couple, and normally, Jean takes care of their finances. While Jean is away on a business trip, Gene goes through the couple’s bill in order to timely make a payment on their credit card with Mesa Bank. When Gene reviews the Mesa Bank credit card statement, he hits the roof when it reads that no payment was received from the Means last month and therefore, the interest rate had jumped from 6% to 26%. The Means are in the process of applying for a new mortgage for a bigger home given the impending arrival of baby Mean. When Gene and Jean speak on the phone, Jean assures Gene that she did in fact timely make a payment last month, which is reflected on the couple’s bank statement. Gene advises Mesa Bank of this and it informs him that the error was the result of a computer reprogramming glitch which resulted in last month’s credit card payment not being recorded and the automatic interest rate hike as a response. Mesa Bank assures Gene the error will be corrected immediately. However, immediately thereafter, Gene obtains the couple’s credit report which already has contained within it the Mesa Bank error. An angry Gene, concerned about the couple’s ability to now get a competitive mortgage interest rate, files suit against Mesa Bank.

How should the judge rule?

A. For the Means because they have incurred damages due to the Mesa Bank mishap showing up on their credit report.
ANSWER "A" IS NOT CORRECT. Please try again.
B. For Mesa Bank because the error was a bona fide error which it readily admitted and corrected.
ANSWER "B" IS CORRECT. Under the Retail Installment Sales Act, creditors have as an available defense a bona fide error if such error was unintentional and the creditor maintained “procedures reasonably adapted to avoid any such errors.” 15 U.S.C. §1640(c). Here, the bona fide error was the computer reprogramming glitch, which Mesa Bank’s software eventually uncovered, alerting Mesa Bank to the problem.