What Are Billing Errors?
Billing errors refer to inaccuracies or discrepancies that appear on a consumer's periodic statement for an extension of credit or other financial services. These errors can range from incorrect charges and misapplied payments to unauthorized transactions or calculation mistakes. As a critical component of consumer finance, the accurate representation of financial activity is essential for maintaining consumer trust and ensuring fair commerce. Identifying and resolving billing errors is crucial for individuals to manage their debt effectively and protect their credit report and credit score.
History and Origin
The issue of billing errors became particularly prominent with the rise of widespread consumer credit, especially credit card usage in the mid-20th century. As electronic payment processing and automated billing systems evolved, so did the potential for systemic or individual mistakes. In response to growing consumer complaints regarding unfair billing practices, the U.S. Congress passed the Fair Credit Billing Act (FCBA) in 1974. This federal law, which amended the Truth in Lending Act, was designed to protect consumers from unfair billing practices related to "open end credit" accounts, such as credit cards and revolving charge accounts. It established specific procedures for consumers to dispute billing errors and mandated that creditors promptly investigate and resolve such disputes5,4. The FCBA aimed to provide a structured dispute resolution mechanism, ensuring that consumers had a clear path to correct inaccuracies without unduly harming their financial standing.
Key Takeaways
- Billing errors are inaccuracies on a financial statement, such as wrong charges, incorrect dates, or misapplied payments.
- The Fair Credit Billing Act (FCBA) protects consumers from unfair credit billing practices, primarily for open-end credit accounts.
- Consumers have specific rights and responsibilities, including a timeframe for notifying creditors of a billing error.
- Creditors are required to investigate reported billing errors and take corrective action if an error is confirmed.
- During an investigation, consumers generally do not have to pay the disputed amount, and creditors are prohibited from taking adverse actions against the consumer's credit standing.
Interpreting Billing Errors
Interpreting billing errors involves scrutinizing a financial statement for any discrepancy that doesn't align with a consumer's record of purchases, payments, or account activity. This includes checking for charges that were never made, duplicate charges, incorrect amounts, or failure to credit payments made. For example, if a consumer makes a payment to their accounts payable on a credit card, and that payment is not reflected or is incorrectly applied, this would be a billing error. Understanding the types of errors covered by regulations like the FCBA is key for consumers to protect themselves.
Hypothetical Example
Consider Sarah, who receives her monthly credit card statement. She reviews the statement and notices a charge for $150 from a clothing store she has never visited. This is a clear example of a billing error, specifically an unauthorized charge. According to consumer protection laws, Sarah would typically have 60 days from the date the statement was sent to notify her credit card issuer in writing about this error. During the investigation, she would not be obligated to pay the $150 disputed amount or any associated interest rate on that specific charge. The credit card issuer would then be required to investigate the claim and either remove the charge or provide an explanation of why they believe the charge is valid, usually within two billing cycles (no more than 90 days).
Practical Applications
Billing errors frequently appear in consumer financial contexts, particularly with revolving credit accounts. The primary application of understanding billing errors is empowering consumers to identify and rectify mistakes on their statements. This includes:
- Credit Card Statements: Common instances involve unauthorized charges, charges with incorrect dates or amounts, computational errors, or charges for goods/services not received. The Fair Credit Billing Act (FCBA) is the foundational federal law governing these types of disputes.
- Utility Bills: Consumers might find miscalculations, duplicated charges, or services billed that were not provided.
- Medical Bills: These are notoriously complex, often containing coding errors, duplicate charges, or charges for services not rendered.
- Subscription Services: Accidental renewals, double billing, or charges after cancellation are frequent issues.
The Consumer Financial Protection Bureau (CFPB) outlines the specific procedures creditors must follow when consumers dispute billing errors on open-end credit accounts, including how payments are handled during an investigation and restrictions on adverse credit reporting3.
Limitations and Criticisms
While consumer protections against billing errors are robust, limitations exist. The FCBA, for example, primarily applies to open-end credit (like credit cards) and generally does not cover installment loans such as car loans or mortgages. Furthermore, to trigger the full legal protections of the FCBA, consumers must send a written notice of the billing error to the creditor within a specific timeframe (typically 60 days from the date the first bill containing the error was sent)2. Simply calling the creditor may not provide the same legal safeguards, though many companies will attempt to resolve phone complaints.
Another limitation is that disputes about the quality of goods or services are not always considered "billing errors" under the FCBA, unless there's a specific issue like goods not being delivered as agreed1. Consumers are still expected to pay any undisputed portions of their bill while an investigation is underway, and failure to do so can result in late fees and negative marks on their credit history.
Billing Errors vs. Chargeback
While both terms relate to disputes over financial transactions, a key distinction lies in their nature and scope.
Billing Errors refer to any inaccuracy or discrepancy on a financial statement, encompassing a broad range of issues from unauthorized charges, incorrect amounts, and misapplied payments to computational mistakes on an invoice or statement. The term "billing error" describes the problem itself.
A Chargeback, on the other hand, is a specific mechanism or process initiated by a consumer (through their bank or credit card issuer) to reverse a disputed transaction. It is the result of a successful dispute, often stemming from a billing error or other issue like financial fraud, goods not received, or services not rendered. When a chargeback occurs, funds are returned to the consumer's account, and the merchant's account is debited. Essentially, a billing error is the problem, and a chargeback can be one of the resolutions for that problem, particularly in the context of payment processing disputes.
FAQs
What types of billing errors are covered by law?
Common billing errors covered by federal law, specifically the Fair Credit Billing Act (FCBA), include unauthorized charges, charges for goods or services you didn't accept or that weren't delivered as agreed, incorrect amounts or dates, mathematical errors, and failure to properly credit payments or returns. It also covers statements sent to the wrong address if you provided a new address.
How long do I have to dispute a billing error?
Under the Fair Credit Billing Act, you generally have 60 days from the date the first bill containing the error was sent to you to notify the creditor in writing. It is important to send a written letter to ensure your rights under the FCBA are protected.
Can a billing error affect my credit score?
During the investigation of a disputed billing error, creditors are prohibited from taking adverse actions against your credit report or credit score related to the disputed amount. However, if the error is ultimately determined not to be an error, or if you fail to pay the undisputed portions of your bill, your credit score could be negatively impacted.
What should I do if I find a billing error?
First, gather all relevant documents, such as sales slips and statements. Then, write a letter to the creditor clearly explaining the billing error and include copies of your supporting documents. Send this letter within 60 days of receiving the statement with the error, preferably by certified mail with a return receipt for proof of delivery. Pay any undisputed amounts on your bill while the error is being investigated.
What happens after I dispute a billing error?
Once your written dispute is received, the creditor must acknowledge it within 30 days. Within two billing cycles (but no more than 90 days), the creditor must investigate the error and either correct it or explain why they believe the bill is accurate. During this period, you are not required to pay the disputed amount, and the creditor cannot report the disputed amount as delinquent to credit reporting agencies.