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What is the Fair Credit Billing Act?
The Fair Credit Billing Act of 1974 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 statements mailed to the wrong address, calculation errors, unauthorized charges, and charges posted for goods that consumers purchased but did not receive.
Disputing a billing error
Under 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 revolving charge store 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 first statement with the error. The notice (which should include your name, address, account information, a summary of the disputed error, and sales receipts or other documents) should be sent to the card issuer’s address for “billing inquiries” and not the address to which you send your payments. You should send it via certified mail for proof of delivery. Otherwise, your claim may not have legal standing.
During the dispute investigation period, it’s all right for a customer to not pay any disputed amount or related charges. However, you should pay other undisputed charges due on the credit card.
The creditor must respond to you 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 you and explain its findings. If you must pay the disputed charges, the creditor has to state how much you owe and why. If a customer does not bear responsibility for the disputed charges, the creditor has to detail what it will do to correct the error.
Other creditor responsibilities
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 procedures do not have the legal right to collect the disputed debt, and up to $50 in finance charges, even if the evidence clearly shows the customer is at fault. The customer also has the right to file a lawsuit against a creditor for violating the FCBA. If you are successful, you would collect the disputed amount and up to twice the amount of the finance charge.
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.
Are you considering a new credit card with better terms? Bankrate’s credit card calculators help you understand your credit card debt and how to pay it off.