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Questions regarding "Fraudulent" CC Charges before


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This is a pretty interesting case and a must to read if you are filing chapter 7 and an OC is challenging it claiming fraudulent use before filing. Sorry for the formatting, copied from an Adobe PDF file.

For the full case click here. Quick and interesting read.

Credit card issuers do not deserve this level of protection for debts they voluntarily assume and from which they profit greatly. In the instant case, it was Plaintiff who approached Defendant offering credit. Plaintiff had the means necessary to monitor the account and to revoke Defendant’s privileges at any time. The Roddenberry court

emphatically declared that the issuer, because of this control, bears the risk of loss from discharge until it revokes a cardholder’s credit privileges. See Roddenberry, 701 F.2d at 932.

Issuers fail to exercise these prerogatives and leave intact the privileges of delinquent cardholders because the finance charges collected on revolving credit more than make up for lost payments. See id.

Issuers profit from a low-odds credit crapshoot. Issuers roll the dice by not

revoking the privileges of cardholders with large balances and overdue minimum payments. An issuer wins if a cardholder begins paying the minimum payment and finance charges. An issuer loses if a cardholder files for bankruptcy protection and receives a discharge. If the Court allowed for the broad exception to non-dischargeability created by the “implied representation” theory, then issuers win either way. Debtors always lose.

The Court finds such a result economically and legally repugnant. The Roddenberry court came to the same conclusion seventeen years ago:

Banks are willing to risk non-payment of debts because that risk is factored into finance charges. Because the risk is voluntary and calculated, § 523(a)(2)(A) should not be construed to afford additional protection for those who unwisely permit or encourage creditors to exceed their credit limits.

Roddenberry, 701 F.2d at 632.

Therefore, the Court rejects the “implied representation” theory and finds that a cardholder does not make a representation of intention or ability to pay by using a credit card. An issuer must bring forth evidence of some actual misrepresentation to satisfy the representation element of the § 523(a)(2)(A) actual fraud exception to discharge.

The Court finds it unnecessary to delve into the myriad lists of factors employed by “implied representation” courts and courts rejecting the theory with their fingers crossed. See, e.g. Merritt, 1997 WL 375693, at *3. If an issuer fails to produce any evidence of an actual, affirmative misrepresentation by a cardholder, then the §523(a)(2)(A) inquiry closes and an ornamental exploration of a cardholder’s intent to pay is foreclosed. There is no actual fraud without some affirmative misrepresentation and reliance thereupon. There is no separate exception to discharge for “possession of an intent to defraud,” and therefore no associated issue for this court to address by the enunciation and conclusory disposition of the eleven-factor “intent to defraud” determination.

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