## Facts

- A consumer cardholder purchased electronic diagrams by telephone from an out-of-state mail-order merchant and paid with a Mastercharge card issued by the bank (about $290).
- The charge posted to the cardholder’s account in July 1981.
- The cardholder received the diagrams, found them unsuitable, and returned them to the merchant via UPS.
- The cardholder notified the bank of the return and provided proof of shipment; the bank initially credited the account and attempted a chargeback.
- The merchant rejected the chargeback, citing a clearly disclosed “No Refund” policy in its catalog and claiming the cardholder knew of the policy.
- The bank redebited the account and later repeated the cycle of temporary credits and chargeback attempts; each time the merchant rejected the chargeback and the bank reinstated the charge.
- The cardholder sued to compel the bank to permanently credit the account and reverse the disputed charge and related finance charges.

## Issues

1. Whether a credit card issuer must credit a cardholder’s account for a returned purchase when the merchant has a disclosed no-refund policy and refuses to accept chargebacks.
2. Whether the cardholder could assert against the issuer claims or defenses arising from the underlying sale under the Truth in Lending Act and related law governing assertion of merchant-related defenses against an issuer.
3. Whether the merchant’s no-refund policy was unfair or unconscionable such that the cardholder had a substantial claim or defense against the merchant that could be asserted against the issuer.

## Decision

- Judgment for the bank; the issuer was not liable for the disputed amount.
- The cardholder remained obligated to pay the charge.
- Even assuming the cardholder could invoke a claims-and-defenses theory against the issuer, the cardholder failed to show a substantial claim or defense against the merchant.
- The merchant’s no-refund policy, as disclosed and applied, was not unconscionable and was sufficiently fair in context.

## Legal Principles

- A cardholder’s rights against a card issuer based on the underlying transaction are generally coextensive with, and not greater than, the cardholder’s rights against the merchant.
- Under the Truth in Lending Act’s claims-and-defenses framework, federal protections operate as minimum standards; state law may allow broader assertion of claims and defenses against an issuer.
- For mail-order transactions, where the “transaction” is deemed to occur for claims-and-defenses purposes may depend on applicable non-federal law, but entitlement to relief still requires a substantively meritorious claim against the merchant.
- A “no refund” policy is not unconscionable per se; enforceability turns on clear disclosure and whether the merchant’s overall return/exchange practices are fair and reasonable under the circumstances.

## Conclusion

The court refused to require the issuer to absorb the loss from the cardholder’s dissatisfaction where the merchant’s no-refund policy was clearly disclosed and fair in practice, leaving the cardholder responsible for the charge because he lacked a substantial claim or defense against the merchant that could be asserted against the bank.


Izraelewitz v. Mfrs. Hanover Tr. Co., 120 Misc. 2d 125, 465 N.Y.S.2d 486 (N.Y. Civ. Ct. 1983)