Skip to main content
diversification.com
← Back to F Definitions

Fair credit billing act fcba

LINK_POOL = {
"internal_links":
"[credit cards",
"billing errors",
"consumer protection",
"credit report",
"chargebacks",
"finance charges",
"open-end credit",
"creditors",
"identity theft",
"credit bureaus",
"dispute resolution",
"debt collection",
"Truth in Lending Act",
"annual percentage rate",
"interest rate",
],
"external_links": [
"Federal Trade Commission",
"Consumer Financial Protection Bureau (CFPB)",
"Cornell Law School Legal Information Institute",
"Federal Reserve History"
]
}

What Is the Fair Credit Billing Act (FCBA)?

The Fair Credit Billing Act (FCBA) is a United States federal law that protects consumers from unfair billing practices related to "open-end credit" accounts, such as credit cards and revolving charge accounts. It falls under the broader category of consumer protection within financial regulation. The FCBA provides a structured process for consumers to dispute billing errors and requires creditors to investigate and resolve these issues. This act is crucial for maintaining consumer confidence in the use of credit and ensuring accountability for accurate billing.

History and Origin

The Fair Credit Billing Act was enacted on October 28, 1974, by the 93rd United States Congress. It was signed into law by President Gerald Ford as an amendment to the Truth in Lending Act (TILA), which itself mandates disclosures of consumer credit terms. The FCBA was designed to address growing concerns over billing inaccuracies and unauthorized charges that became more prevalent with the widespread adoption of credit cards. Its passage aimed to provide a clear legal framework for consumers to challenge erroneous charges and protect their financial standing. The St. Louis Federal Reserve's FRASER portal contains historical documents related to the Fair Credit Billing Act and the Equal Credit Opportunity Act, both enacted on the same date21.

Key Takeaways

  • The Fair Credit Billing Act (FCBA) protects consumers from unfair billing practices on open-end credit accounts like credit cards.
  • It establishes a formal dispute resolution process for consumers to challenge billing errors.
  • The FCBA requires creditors to investigate consumer disputes and correct any errors found.
  • The law limits a consumer's liability for unauthorized charges to $50.
  • Consumers generally have 60 days from receiving a statement to dispute a charge.

Interpreting the Fair Credit Billing Act (FCBA)

The Fair Credit Billing Act is interpreted as a vital safeguard for consumers engaging with credit. It grants specific rights and imposes obligations on both consumers and creditors regarding billing disputes. For instance, if a consumer identifies a charge on their statement that they believe is incorrect or unauthorized, the FCBA provides a clear pathway to challenge it. The law mandates that credit card issuers promptly acknowledge and thoroughly investigate such claims. This means that if a consumer disputes a charge, the creditor cannot simply ignore it; they must follow established procedures to determine the validity of the claim. Furthermore, during the investigation period, the consumer is not required to pay the disputed amount, and the creditor cannot negatively impact the consumer's credit report solely due to the dispute19, 20.

Hypothetical Example

Consider Sarah, who receives her monthly credit card statement and notices a charge for $150 from a store she has never visited. This constitutes a billing error under the Fair Credit Billing Act.

  1. Notification: Sarah should promptly send a written letter to her credit card issuer's billing inquiry address, explaining the disputed charge. According to the FCBA, this letter must be sent within 60 days of the statement date on which the error first appeared.
  2. Acknowledgment: The credit card issuer must acknowledge Sarah's letter in writing within 30 days of receiving it.
  3. Investigation: The issuer then has two complete billing cycles, but no more than 90 days, to investigate the disputed charge. During this time, Sarah is not obligated to pay the $150 disputed amount, nor can the issuer report it as delinquent to credit bureaus18.
  4. Resolution:
    • If the issuer finds the charge was indeed an error, they must credit Sarah's account for the $150 and any associated finance charges. They must also notify Sarah of the correction.
    • If the issuer determines the charge is valid, they must explain why, provide documentation if Sarah requests it, and inform her of the amount owed and the payment due date.

Practical Applications

The Fair Credit Billing Act has several practical applications in the realm of consumer finance and debt collection:

  • Disputing Unauthorized Charges: The FCBA is frequently used by consumers to report and resolve unauthorized transactions on their credit card statements, including instances of potential identity theft. The law limits a consumer's liability for such charges to $50, provided they report the issue promptly17.
  • Addressing Merchant Errors: Consumers can utilize the FCBA when there are discrepancies with goods or services purchased with a credit card, such as items not delivered, wrong amounts charged, or services not rendered as agreed. This forms the basis for many chargebacks where a consumer disputes a transaction directly with their card issuer16.
  • Protecting Credit Standing: During a billing error investigation, the FCBA prohibits creditors from reporting the disputed amount as delinquent to credit reporting agencies, thus safeguarding a consumer's credit report during the dispute resolution process15.
  • Timely Payment Posting: The Act also requires creditors to promptly post payments to a consumer's account, preventing unwarranted late fees or additional finance charges due to delayed processing13, 14. The Federal Trade Commission provides consumer advice on using credit cards and disputing charges, highlighting the protections offered by the FCBA12.

Limitations and Criticisms

While the Fair Credit Billing Act offers significant consumer protection, it does have limitations and has faced some criticisms. The FCBA primarily applies to open-end credit accounts, such as credit cards and lines of credit, and generally does not cover installment loans like auto loans or mortgages. This means that consumers cannot use the FCBA's dispute resolution process for errors on those types of accounts.

Furthermore, consumers must adhere to strict timelines, typically notifying their creditors of a billing error in writing within 60 days of the statement date. Failing to meet this deadline can result in the loss of certain protections under the act11. Some critics also point to the potential for complexity in the dispute resolution process, requiring consumers to understand specific procedures and addresses for billing inquiries, rather than simply the payment address10. In some cases, the interpretation of what constitutes a "billing error" can also be a point of contention between consumers and financial institutions. The Consumer Financial Protection Bureau (CFPB) has, at times, provided guidance and taken enforcement actions related to how financial institutions handle billing errors under Regulation Z, which implements the FCBA and the Truth in Lending Act8, 9.

Fair Credit Billing Act (FCBA) vs. Fair Credit Reporting Act (FCRA)

The Fair Credit Billing Act (FCBA) and the Fair Credit Reporting Act (FCRA) are both federal laws aimed at consumer protection in the financial realm, but they address different aspects of credit. The Fair Credit Billing Act specifically focuses on protecting consumers from unfair billing practices on open-end credit accounts, such as credit cards. Its primary purpose is to provide a mechanism for disputing errors on a billing statement, whether they are unauthorized charges, incorrect amounts, or charges for undelivered goods or services.

In contrast, the Fair Credit Reporting Act (FCRA) governs the collection, dissemination, and use of consumer financial information, particularly credit reports. The FCRA ensures the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies (i.e., credit bureaus). While the FCBA helps resolve issues on your bill, the FCRA dictates how those issues, or any other credit-related information, can be reported to and appear on your credit report6, 7. Both acts are crucial for maintaining consumer financial health, with the FCBA handling active billing disputes and the FCRA overseeing the accuracy and privacy of one's credit history.

FAQs

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

The Fair Credit Billing Act covers a range of billing errors, including unauthorized charges, charges for goods or services not accepted or not delivered as agreed, charges for incorrect amounts, calculation errors, failure to properly reflect payments or credits, and statements sent to the wrong address.

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

You generally have 60 days from the date the first bill containing the error was sent to you to notify your creditor in writing of the billing error5.

What happens after I dispute a charge?

Once you dispute a charge, your creditor must acknowledge your dispute in writing within 30 days. They then have two complete billing cycles (but no more than 90 days) to investigate the error and either correct your account or explain why they believe the charge is valid. During this investigation period, you do not have to pay the disputed amount and the creditor cannot report it as delinquent on your credit report3, 4.

Does the Fair Credit Billing Act apply to debit card transactions?

No, the Fair Credit Billing Act primarily applies to open-end credit accounts, such as credit cards and revolving charge accounts. Debit card disputes are typically covered by other regulations, such as the Electronic Fund Transfer Act.

Can I be held liable for unauthorized charges under the FCBA?

Under the Fair Credit Billing Act, your liability for unauthorized charges on your credit card is limited to $50, provided you report the loss or theft of your card promptly. If you report it before any unauthorized charges are made, you may have no liability at all1, 2.