How the Fair Credit Billing Act Protects You

By Susan Johnston Taylor. Last updated 28 January 2018. 0 comments

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Ever spotted a billing error on your credit card statement? Perhaps a merchant charged you the wrong amount, or charged your card for something you never authorized or never received. The Fair Credit Billing Act (FCBA), which was enacted in 1974, has provisions designed to protect consumers. Its protections can apply in cases where someone else uses your credit card fraudulently, when a merchant fails to deliver goods as promised, or when a credit card issuer improperly applies payments.

There are a few areas the FCBA definitely doesn't cover. If you run into issues involving a debit card, that would fall under the Electronic Fund Transfer Act, not the FCBA. Business credit cards and installment loans such as car loans or student loans also fall outside of the FCBA.

Most other billing errors on credit card bills do fall under the FCBA. The law also protects you if you have an open-end loan, such as a line of credit. It helps to know your rights and how you can exercise them. Here's how you're protected under the FCBA.

You have the right to dispute billing errors

The FCBA defines billing errors as any of the following:

  • Charges you did not make. The FCBA limits your liability to $50 per unauthorized charge (but all the major credit card networks have zero liability policies for unauthorized transactions, meaning you usually won't pay a cent anyway).
  • Charges with the wrong date or amount.
  • Charges for goods or services you did not receive.
  • Charges for goods or services that were significantly not as described.
  • Charges for goods or services that were not delivered as agreed or were received damaged.
  • Charges made after you canceled a contract with the merchant.
  • Failure to reflect payments or credits to your account (for instance, if you return something and you're not credited for the item).
  • Failure to send bills to your current address (as long as the creditor has your change of address in writing at least 20 days before the billing period ends).
  • Math errors.

Check credit card statements regularly

Many credit card issuers have become more vigilant about fraud since consumer data breaches ramped up a few years ago. For instance, some card companies will contact customers about suspicious activity or allow card holders to temporarily "turn off" a lost card, rendering it inactive for a period of time. (See also: How to Protect Your Credit After the Equifax Breach)

Still, credit expert John Ulzheimer, formerly of FICO and Equifax, says consumers should keep monitoring their accounts and know their dispute rights under the FCBA. "Consumers should be cognizant of credit card fraud," he says. "It limits the inconvenience" if you can detect fraud early.

Before you file a dispute with your credit card issuer, contact the merchant and try to resolve the error with them. You might discover that you actually did authorize the charges. For instance, maybe you signed up for a subscription without realizing that the terms of service included auto-renewal in the fine print. Or perhaps you don't recognize the name of the company but it's actually the parent company of a vendor you did authorize. Your credit card issuer wants you to eliminate these possibilities before they get involved. (See also: How to Win a Fraud Dispute With Your Credit Card Company)

Dispute billing errors promptly

If an error isn't resolved or explained by the merchant, send a dispute letter to the creditor. "You have to go and look on your invoice or monthly statement to find the address where they want you to send billing inquiries," says Sonya Smith-Valentine, president of Financially Fierce, LLC and a former managing attorney with Valentine Legal Group, which handled financial and consumer protection litigation. "It's not the address where you send your payment."

Be sure your letter includes your name, address, account number, and a description of the billing error. You can use the FTC's sample dispute letter for help. You need to file your dispute within 60 days after the first bill with the error was mailed to you, so time is of the essence. If you discover several months later that you're still being billed for a subscription you thought you canceled, you may not be able to recoup all of your losses.

"All of these things are unfortunately specified in the law so that if you make a mistake, you no longer get the protection [of FCBA rights]," Smith-Valentine says. Creditors may still resolve things in your favor if you file your dispute late or mail the letter to the wrong address, but they're not obligated to do so.

Many credit card companies now give you the ability to file a dispute via their websites or mobile apps. The Federal Trade Commission, however, recommends sending a letter by certified mail and requesting a return receipt so you have proof that the creditor received your dispute letter.

Along with your letter, include copies (not originals) of sales slips or other documents that support your dispute. For instance, if you returned an item that the merchant says it never received, you might include a shipping receipt with a tracking number showing the item was, in fact, returned. Also keep a copy of your dispute letter and any supporting documents for your own records.

You can withhold payment on the disputed amount during the investigation

"Once you contact your credit card company, they've got 30 days to acknowledge that they received your letter, and two billing cycles to resolve the problem," Smith-Valentine explains.

While your credit card company investigates the item(s) you've disputed, you don't have to pay unauthorized or erroneous charges. Even if you don't pay for these charges, the card company cannot threaten your credit or report you as delinquent during their investigation. However, you must still pay other outstanding balances on your credit card. This includes interest not related to the amount you've disputed. (See also: Dealing With Nasty Debt Collectors)

If an error was made, you're entitled to a refund

Once the investigation is complete, if the creditor finds there was an error, it must explain to you in writing how it will make things right. It must also credit your account for the incorrect amount and remove all finance charges, late fees, or other charges related to the error.

If the investigation determines that you only owe part of the disputed amount (for instance, maybe part of your online order never arrived but other items did), the credit card company must send you a written explanation. You are also entitled to request documentation proving that you owe that portion of the disputed amount.

If you're found in the wrong, you're entitled to an explanation in writing

If the creditor determines your bill does not contain any errors, on the other hand, it must notify you in writing about how much you owe and why. You may request copies of relevant documents as proof. In addition to the disputed amount, you'll also owe any finance charges that accumulated during the dispute process and possibly the minimum amount you missed due to the dispute.

Still not convinced you owe money as the creditor claims? Write to the creditor within 10 days after receiving its explanation, and state your refusal to pay the disputed amount. The creditor may begin the collections process, but if it reports you as delinquent to a credit reporting agency, the report also must state that you don't agree that you owe the money.

If the lender fails to follow these settlement procedures, it may not collect the amount in dispute or any related finance charges, up to $50, even if its investigation reveals that the bill was correct. If, for instance, the credit card company threatens to report your nonpayment (or actually reports it) during the dispute period to the credit bureaus, it wouldn't be able to collect the amount it says you owe. (See also: How to Read a Credit Report)

You're entitled to have your payments applied to your account in a timely fashion

The FCBA requires credit card issuers to send you a statement at least 21 days before your payment is due — meaning, before the grace period expires. For open-end credit (such as a line of credit), the rules are a little different. A lender must send your bill at least 14 days before a minimum payment is due.

The law also requires that your payment be credited to your account on the day it was received. However, creditors can set a reasonable cutoff time for payments to be credited on the same day. The earliest cutoff time allowable is 5 p.m. on the due date, so payments made after the cutoff time would be credited to your account on the following business day. Note, however, that the creditor can decide in which time zone that cutoff time falls. So if it says your payment is due at 5 p.m. Eastern time, but you live in California, you'll need to submit your payment online before 2 p.m. Pacific time.

In addition to these rights, credit card companies have to give you a written notice of your right to dispute billing errors whenever you open a new account and periodically over the life of that account.

You can sue creditors who violate your rights

You can sue a creditor who infringes on your rights under the FCBA, and you may be awarded damages if the court agrees that the creditor violated your rights. "The damages usually are twice the amount of any finance charges as long as it's between $500 and $5,000," says Smith-Valentine. (Damages can be even higher if the creditor has a history of violations.) "These aren't high dollar amounts, so you're not gonna walk away a millionaire, but your problem will get resolved," she adds.

In some cases, the creditor may be obligated to cover your legal costs in addition to paying damages. "A lot of times attorneys who will take the case won't charge you because they know they can get the court to pay your attorney costs," Smith-Valentine says.

Not comfortable going to court? You may not have to. "More often than not, [these issues] get resolved before going to trial," Smith-Valentine concludes.

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