How does the Fair Credit Billing Act work?
The FCBA covers open-end credit accounts, like a credit card, home equity line of credit (HELOC), or a charge card. Other types of accounts, like home or auto loans, are not covered. Here are some of the rights the FCBA grants consumers:
Right to dispute a fraudulent charge on your billing statement
Let's say your Discover card is stolen. You report the theft as soon as you realize the card is gone. Two weeks later, you open your credit card statement and see charges you did not make. Before the FCBA, it was up to you as the cardholder to prove that those debts were not yours. But since the FCBA became law, your total liability is limited to $50 -- even if the unauthorized charge was for thousands of dollars.
Your credit card issuer may go one step further by imposing zero liability on unauthorized charges as a form of customer service. And the best news yet is that you don't have to worry about the fraudulent charge showing up on your credit report. It is as though the disputed charge never happened at all, so your credit score is untouched.
Important note: If you authorize someone to use the card and they make unauthorized charges, that is not covered under the FCBA, and you are responsible for payment.
Simple mistakes
You also have the right to dispute when the wrong amount is charged to your card account. Imagine you're in a diner and use your Chase card to cover a $23 purchase. You open your credit card bill later and see that the charge is now $123. Maybe it was credit card fraud, and someone at the diner added a one, or perhaps it was a simple case of human error. Whatever the reason for the change, the FCBA gives you the right to dispute the difference.
According to the FCBA, you must first make a good-faith effort to deal with the problem by contacting the merchant. In this scenario, you would contact the diner. It's in the diner's best interest to help you out, because if the financial institution that issued the credit card gets involved, the restaurant must pay a fee to investigate the charge. Retail establishments typically find it easier (and less expensive) to help a customer sort it out before the card issuer becomes involved.
If the diner won't help, it's time to dispute the charge with Chase. The credit card company removes the charge during the dispute process, so you aren't expected to pay until a decision is reached. If an investigation finds in your favor, the credit card company issues a chargeback, which reverses the transaction and returns the funds to you.
Undelivered purchases
If you make a purchase using your credit card and the seller doesn't deliver the product or service, the FCBA gives you the right to dispute the charge to your credit card.
Unknown charges
You may not be sure about a charge, particularly if it was made while you were on vacation or otherwise distracted. The FCBA grants you the right to request written proof of a purchase if you're suspicious that it may be an error or even identity theft.
Sets clear rules for creditors
Let's face it: at one time, creditors had all the power. They set their own rules and enforced them in a way that benefited them. Due to FCBA, creditors are now required to:
- Provide written notice when you open an account (and periodically throughout the time you keep the account). This written notice must explain your right to dispute billing errors.
- If your card has a grace period, creditors must send your bill 21 days before the billing cycle grace period expires. If there's no grace period in your billing cycle, they must send your bill at least 14 days before the minimum payment is due.
- If you make an overpayment to your account, FCBA requires the creditor to apply the excess to your account number. If you request a refund of the overpayment, the creditor must refund the money.
- Creditors must post all payments to your account on the day they are received, helping you avoid a finance charge or late payment fee.
How to dispute issues
How you dispute an issue depends on the situation you're facing. For example:
To dispute a billing error:
- Within 60 days of when the creditor sends the billing statement, mail a dispute letter to the creditor. To be on the safe side, send it by certified mail with a return receipt, so you have evidence of when the creditor received the letter.
- Once the creditor receives your letter, it has two billing cycles (up to a maximum of 90 days) to investigate and resolve the issue.
- If you do not believe your creditor is abiding by the FCBA, you have the legal right to sue. If the court finds in your favor, they will likely order the creditor to pay your damages and attorney fees.
If you're a victim of identity theft:
If someone uses your card without your permission, contact your credit card company right away. While sending a physical letter as a follow up is a good idea, the most important thing is to make sure that the card account is frozen and cannot be used again without your permission.
It's easy to picture nothing but partisanship and in-fighting when you think of lawmakers. But through the years, Congress has initiated some powerful consumer protection tools, including the Fair Credit Billing Act. If you use consumer credit, you do yourself a favor when you understand your rights.
