Fair credit billing act: Meaning, Criticisms & Real-World Uses

What Is Fair Credit Billing Act?

The Fair Credit Billing Act (FCBA) is a United States federal law enacted to protect consumers from unfair credit billing practices. It falls under the broader category of consumer protection law, specifically addressing issues related to open-end credit accounts like credit card and revolving charge accounts. The Fair Credit Billing Act establishes a formal procedure for consumers to dispute billing error and outlines the responsibilities of creditors during such disputes. This act ensures that consumers have a clear path to correct inaccuracies on their bills, such as unauthorized charges, incorrect dates, or computational errors.

History and Origin

The Fair Credit Billing Act was enacted on October 28, 1974, as an amendment to the Truth in Lending Act (TILA). Its passage was a significant step in bolstering consumer finance protections in the burgeoning credit card industry. Prior to the FCBA, consumers had limited recourse when faced with billing discrepancies, often struggling to resolve issues with creditors who held significant power. The law was designed to provide a standardized mechanism for resolving such disputes, ensuring fairness and transparency in credit billing processes.¹⁷ It was signed into law by President Gerald Ford.

Key Takeaways

The Fair Credit Billing Act (FCBA) protects consumers from unfair billing practices on open-end credit accounts.
It provides a formal process for consumers to dispute billing errors, such as unauthorized charges or incorrect amounts.
Consumers must notify the creditor in writing within 60 days of receiving the bill containing the error.
Creditors are required to investigate the dispute promptly and cannot take adverse action against the consumer's credit standing during the investigation.
The FCBA limits a consumer's liability for unauthorized charges to $50.

Interpreting the Fair Credit Billing Act

The Fair Credit Billing Act establishes specific rights and responsibilities for both consumers and creditors in the event of a billing dispute. For consumers, the act empowers them to challenge questionable charges and inaccuracies without immediately being liable for the disputed amount. It is crucial for consumers to send a written notice of the billing error to the creditor within 60 days of the statement date on which the error first appeared. This written notification triggers the creditor's obligations under the act.¹⁶

Creditors, in turn, must acknowledge the consumer's written dispute within 30 days and conduct a reasonable investigation, resolving the issue within two billing cycles (but no more than 90 days). During this dispute resolution period, the creditor cannot attempt to collect the disputed amount, report the amount as delinquent to a credit bureau, or close the account solely due to the disputed amount. If an error is found, the creditor must correct it and refund any associated finance charges.¹⁴, ¹⁵

Hypothetical Example

Suppose Jane receives her credit card statement and notices a charge for $150 from a store she has never visited. This constitutes an unauthorized charge, which is a type of billing error covered by the Fair Credit Billing Act.

To invoke her rights under the FCBA, Jane must:

Identify the error: She finds the $150 charge on her statement dated July 5th.
Send written notice: Within 60 days of July 5th, Jane writes a letter to her credit card company, clearly stating her name, account number, the disputed amount, and her reason for believing it's an error. She sends this letter to the billing inquiries address provided on her statement, typically via certified mail with a return receipt requested to prove delivery.
Await investigation: The credit card company must acknowledge her letter within 30 days. They then have two billing cycles (or 90 days) to investigate the claim. During this time, Jane is only obligated to pay the undisputed portion of her bill.
Resolution: If the investigation confirms the charge was unauthorized, the credit card company must remove the $150 charge and any associated interest. If they determine the charge is valid, they must provide a written explanation of their findings. Even if the charge is found valid, Jane's liability for an unauthorized charge is capped at $50 under the FCBA.¹³

Practical Applications

The Fair Credit Billing Act is primarily applied in consumer interactions with creditors for revolving credit accounts. Its most common applications include:

Disputing Unauthorized Charges: If a consumer's credit card is stolen or used fraudulently, the FCBA limits their liability to $50 and provides a structured way to dispute these charges.¹²
Correcting Clerical Errors: The act covers mistakes such as incorrect transaction dates, wrong amounts, or calculation errors on a statement.
Addressing Undelivered or Misrepresented Goods/Services: For purchases over $50 made within the consumer's home state or within 100 miles of their address, consumers can dispute charges for goods or services that were not delivered as agreed or were misrepresented, provided they have made a good faith effort to resolve the issue with the merchant first.
Ensuring Proper Payment Posting: The FCBA requires creditors to promptly post payments to a consumer's account, preventing unwarranted finance charges or late fees due to delayed processing.¹¹

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are key agencies responsible for enforcing the FCBA and providing guidance to consumers on their rights.¹⁰ Consumers can find detailed information on disputing credit card charges through resources provided by the CFPB.⁹

Limitations and Criticisms

While the Fair Credit Billing Act offers significant protections, it also has certain limitations. One primary limitation is that the act applies only to "open-end" credit accounts, such as credit cards and lines of credit. It does not cover installment loans, like car loans or mortgages, nor does it typically apply to debit card transactions.⁸

Another crucial aspect is the procedural nature of the FCBA. To fully invoke the protections of the act, consumers must send a written dispute notice to the creditor within 60 days of the bill's mailing date.⁷ A simple phone call, while often helpful for quick resolutions, does not trigger the formal protections of the FCBA, which can leave consumers without the full legal backing provided by the written dispute process. Furthermore, while the FCBA ensures a process for dispute, it does not guarantee that every billing error will be found in the consumer's favor. The creditor's investigation, if procedurally compliant with the act, may conclude that the charge is valid. Consumers have a limited time to respond to the creditor's findings, after which the creditor can report the disputed charge to credit bureau and initiate collections.⁶

Fair Credit Billing Act vs. Fair Credit Reporting Act

The Fair Credit Billing Act (FCBA) and the Fair Credit Reporting Act (FCRA) are both federal laws designed to protect consumers in the realm of consumer credit, but they address different aspects. The FCBA specifically focuses on protecting consumers from unfair practices related to billing errors on open-end credit accounts. It provides a mechanism for consumers to dispute incorrect charges, unauthorized transactions, or other billing inaccuracies that appear on their credit statements.

In contrast, the FCRA governs the collection, dissemination, and use of consumer credit report information. It ensures the accuracy, fairness, and privacy of consumer credit data maintained by credit bureau. While the FCBA addresses disputes on a current bill, the FCRA provides consumers with the right to access their credit reports, dispute inaccurate information appearing on their reports, and requires credit reporting agencies and furnishers of information to investigate disputes. Essentially, the FCBA deals with transactional errors on credit statements, while the FCRA deals with the underlying data that affects a consumer's credit score and overall creditworthiness.

FAQs

What types of credit are covered by the Fair Credit Billing Act?

The Fair Credit Billing Act primarily covers "open-end" credit accounts, such as credit card and revolving credit accounts. It does not generally apply to installment loans like car loans or mortgages, or debit card transactions.

How much time do I have to dispute a billing error under the FCBA?

You must send a written notice of the billing error to your creditor within 60 days after the creditor sent you the first bill containing the error.⁵

What kind of errors are covered by the Fair Credit Billing Act?

Covered errors include unauthorized charges, charges for goods or services you didn't receive or accept, incorrect amounts, wrong dates, mathematical errors, or failure to properly credit payments or returns.⁴

What happens after I dispute a charge?

Once the creditor receives your written dispute, they must acknowledge it within 30 days. They then have two billing cycles (but no more than 90 days) to investigate and either correct the error or explain why they believe the bill is correct. During this period, you are not required to pay the disputed amount.², ³

What is my liability for unauthorized credit card charges?

Under the Fair Credit Billing Act, your maximum liability for unauthorized charges on your credit card is $50, provided you report the loss or theft of your card. If you report the card stolen before any unauthorized charges are made, you typically have no liability.¹