## Facts

- Telco Communications Group, Inc., a Virginia long-distance provider, sold Race Rock of Orlando, L.L.C., a Florida restaurant entity, long-distance services through a service order that included five calling cards.
- One calling card number was compromised, but the physical card remained in Race Rock’s possession.
- Telco billed Race Rock more than $92,000 for international calls listed on a January 1, 1999 invoice; Race Rock asserted the calls were unauthorized and destroyed the card after receiving the invoice.
- Race Rock, through its broker and finance director, notified Telco and alleged Telco employees acknowledged the charges were fraudulent and not made by Race Rock’s employees.
- Telco later treated the invoice as past due, sent the account to collection, and sued in Virginia state court for $92,721.29 on a breach-of-contract theory.
- Race Rock removed to federal court on diversity grounds and moved to dismiss under Rule 12(b)(6), arguing federal credit-card rules limited or eliminated liability for unauthorized use.

## Issues

1. Whether the calling card qualified as a “credit card” under the Truth in Lending Act and Regulation Z.
2. If so, whether liability for unauthorized use was capped at $50 under 15 U.S.C. § 1643(a), and whether failure to provide Regulation Z notice barred even that liability.
3. Whether a state-law breach-of-contract claim could proceed to recover the full billed amount despite the federal unauthorized-use scheme.

## Decision

- The court granted Race Rock’s Rule 12(b)(6) motion and dismissed Telco’s breach-of-contract action.
- The court held the calling card was a “credit card” because it permitted deferred payment via later billing.
- Accepting the allegations as true at the pleading stage, the calls were plausibly “unauthorized use” within § 1643.
- Because Telco did not comply with Regulation Z’s required disclosures regarding potential liability and reporting procedures, Telco could not impose even the otherwise permissible $50 liability.
- Telco therefore failed to state a claim to recover $92,721.29 for unauthorized calling-card charges.

## Legal Principles

- A device functions as a “credit card” under TILA when it allows the user to incur charges and defer payment, even for a short period.
- Under 15 U.S.C. § 1643(a), a cardholder’s liability for unauthorized use is limited to $50 only if statutory and regulatory conditions are satisfied.
- Regulation Z, 12 C.F.R. § 226.12(b)(2), requires issuers to provide notice of potential liability and the means and contact information for reporting loss or theft; noncompliance prevents shifting unauthorized-use losses to the cardholder.
- A creditor cannot use state-law contract theories to recover amounts that federal unauthorized-use protections allocate to the issuer.

## Conclusion

The court treated the telecom calling card as a TILA-governed credit card and held that alleged unauthorized charges were not recoverable from the customer because the issuer failed to provide the disclosures required by Regulation Z, warranting dismissal of the contract claim seeking the full billed amount.


Telco Commc’ns Grp., Inc. v. Race Rock of Orlando, L.L.C., 57 F. Supp. 2d 340 (E.D. Va. 1999)