A business's monthly bill for long‑distance telephone services had charges totalling over $90,000 and included numerous overseas calls. An investigation confirmed that no employee had placed the calls or had authorized anyone to do so. While none of the business's five telephone calling cards was missing, it was clear that someone had stolen the number from one of the cards and gone on a calling spree. The business explained the situation to the long‑distance service provider, but the provider eventually turned the matter over to an attorney for collection.

The long‑distance provider sued its customer for breach of contract, alleging that the agreement and the applicable federal tariffs filed by the provider required customer liability for unpaid amounts and for finance charges for late payments and attorney's fees. The business argued that it owed only $50 because the calling cards were actually credit cards and were governed by the Truth in Lending Act. Part of the federal Truth in Lending Act is implemented by Regulation Z, which states that the liability of a cardholder for the unauthorized use of a "credit card" may not exceed $50.

The court ruled in favor of the business, pointing out that when the Federal Reserve Board amended Regulation Z to make it cover all credit cards issued for use in connection with extensions of credit, it had explained that "the vast majority of credit cards that are affected by this amendment are telephone calling cards." The Board further stated that coverage of telephone cards took on greater importance because of the millions of such cards that have been issued in recent years and the uncertainty as to what policies would be adopted by telephone companies to deal with unauthorized calls.

The Board defined "credit" in Regulation Z as the right to defer payment of debt or to incur debt and also defer its payment. Whatever other traits a telephone calling card may have, it allows the holder to obtain services and pay for them later. The court rejected the provider's characterization of its cards as merely serving as membership cards or as only providing the method for accessing services without any credit function.

The tariff filed by the provider with the Federal Communications Commission stated that a customer could avoid liability for unauthorized calls only for charges incurred after the customer notified the provider that authorization codes had been lost or stolen. While generally a tariff controls the terms of an agreement between the customer and the provider, the tariff could not change, and the court could not ignore, a federal consumer protection regulation like Regulation Z.