Fair Credit Billing Act

What is the Fair Credit Billing Act?

The Fair Credit Billing Act of 1975 is a federal law designed to prevent unfair credit-billing practices. It outlines guidelines that apply to both lenders and consumers for handling disputes about errors on billing statements. These errors include charges posted to the wrong accounts, statements mailed to the wrong address, calculation errors, and charges posted for goods that consumers purchased but did not receive.

Deeper definition

According to the Fair Credit Billing Act, creditors and borrowers have specific responsibilities during billing disputes. The law applies only to accounts associated with credit cards and store charge cards. It does not apply to installment loans such as those used to purchase furniture or vehicles.

The dispute process starts when a borrower notices an error on a billing statement. The borrower must notify the credit card company in writing within 60 days after the creditor mailed the statement.

The creditor must respond to the customer within 30 days of receiving the notice of dispute and explain how it plans to correct the issue. The law requires the creditor to resolve the dispute within the next two billing cycles. At the end of its investigation, the creditor must write to the customer and explain its findings. If the customer must pay the disputed charges, the creditor has to tell how much the customer owes and why. If the customer does not bear responsibility for the disputed charges, the creditor has to detail what it will do to correct the error

The Fair Credit Billing Act lists other obligations of the creditor, including when and where to send billing statements, when to credit payments, and how to handle a dispute. The creditor must:

  • Provide a billing statement to customers who owe or are owed more than $1.
  • Send bills to the customer’s current address at least 20 days before the billing cycle ends.
  • Provide a written notice about the right to dispute errors to customers who open new accounts.
  • Credit payments the same day received.
  • Promptly refund overpayments.
  • Drop accrued interest charged to accounts if it decides the customer is not liable for the disputed charges.
  • Not threaten to harm a customer’s credit or close an account during a dispute.

Creditors that violate the Fair Credit Billing Act do not have the legal right to collect the disputed debt even if the evidence clearly shows the customer is at fault. The customer also has the right to file a lawsuit against the creditor and collect the disputed amount and up to twice the amount of the finance charge.

According to the Fair Credit Billing Act, the consumer also has certain responsibilities. Customers must send the notice of the dispute to the creditor’s address for billing inquiries, and send it via certified mail for proof of delivery. If the customer fails to do this, the claim does not fall under the protection of the law. Additionally, the consumer should include all relevant documents and information, such as sales receipts, to support the claim.

Fair Credit Billing Act example

One example of how the Fair Credit Billing Act works is what happens when a customer discovers that a credit card company did not credit his account for a payment made during the billing cycle and charged him a penalty for the missing payment. According to the law, the customer has the right to ask the credit card company to correct the error and remove the penalty and accrued interest.

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