The Fair Credit Billing Act: The Foundation of Chargeback Law
The Fair Credit Billing Act, or FCBA, is a 1974 federal law in the United States. Legislators designed the FCBA to protect consumers from unfair credit billing practices and, in the process, help build consumer confidence in new forms of credit offered by financial institutions.
At that time, credit cards were a new and novel concept. Many consumers were unfamiliar with them, and many who were familiar didn’t trust them. It didn’t help that a common early marketing tactic for credit cards involved blindly mailing cards to consumers: BankAmericard, for instance, launched their program by mailing 60,000 unsolicited cards to unsuspecting customers. As a result, credit cards were often issued to ineligible consumers, while other cards fell into fraudsters’ hands.
Pressure from industry groups and consumer advocates alike led the federal government to act. Implementation of the FCBA guaranteed consumers protection under federal law. This helped bolster consumer confidence, clearing the path for the payments industry to become what it is today.
The Fair Credit Billing Act remains the foundation of chargeback law in the US. But, of course, circumstances external to the legislation change over time. That’s why it’s important to examine the FCBA in a contemporary context, and consider whether the legislation is still effective.
Legacy of the FCBA
You can view the full text of the Fair Credit Billing Act on the Federal Trade Commission official website. However, we can cover the basics of the legislation here.
The FCBA began as an expansion on the Truth in Lending Act (TILA) of 1968. This legislation requires lenders to conspicuously provide customers with loan cost information. In practical terms, it means lenders must disclose the terms of a loan, total costs to the borrower, and the annual percentage rate (APR) before offering a loan to a potential borrower (credit cards included).
Lawmakers intended TILA to promote informed use of credit cards by consumers. Shortcomings in the initial legislation soon appeared, though, requiring periodic expansions. For instance, TILA expanded in 1970 to include a ban on sending unsolicited credit cards in the mail. Despite these updates, by 1974, it was clear that more comprehensive consumer protections were necessary.
As enacted, the FCBA clarified details of the original legislation, while responding to new developments in the industry. For example, the law included rules for how to disclose maximum interest rates in a variable-rate credit contract. It also set standards for a cardholder’s liability in the even of fraud. The best-known legacy of the FCBA, though, is the introduction of chargebacks to the payments industry.
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The FCBA & Chargebacks
The Fair Credit Billing Act establishes that consumers have a right to dispute credit billing in certain cases. For instance, if a consumer notices an item charged to his or her account for an incorrect amount, or if a charge is fraudulent, that person has the right to fight the charge. The law didn’t establish detailed procedures for disputes; instead, it mandated that card networks and issuers develop these procedures.
The basic rights and responsibilities outlined in the FCBA include:
- 60-Day Time Limit: Consumers have at least 60 days after receiving a bill to dispute a charge. Eligible charges must be at least $50.
- Receipt of Complaint: Issuers must acknowledge and begin investigating a cardholder’s complain within 30 days.
- Issuer Must Act on Consumer’s Behalf: If investigation reveals an invalid payment, the issuer must work to correct the error.
- Consumer May Challenge Finding: If the investigation doesn’t reveal an invalid payment, the customer has at least ten days to challenge the result.
- Dispute by Phone: If the card in question was lost or stolen, the customer may initiate payment disputes by phone.
Of course, those are the minimum protections required under the law. In practice, most card networks and issuers have chargeback procedures that offer significantly more protection for cardholders than what the law requires.
Outdated Procedures Hurt Merchants & Enable Fraud
The rules for disputes were flesh fleshed-out a bit in the Uniform Commercial Code, or UCC. Even with that clarification, the rules remain relatively broad and ambiguous.
The Fair Credit Billing Act doesn’t directly govern chargeback procedures; it only provides a mandate for them. As mentioned above, most card networks and issuers provide consumer fraud protections stronger than those required under the law. This can seem like an ideal setup, but the fact that the law leaves issuers and card networks to iron out the details led to unforeseen problems.
Each card network has its own rules and procedures, which can change at any time. This leads to divergent and even contradictory rules from one entity to the next. Chargeback reason codes, for instance, differ from one card brand to another; many are similar, but variations in terminology, verbiage, and definitions can impact chargeback rules and processes.
Similarly, card networks like Visa and Mastercard use different formulas for calculating your chargeback-to-transaction ratio. This is a critical indicator, and how the card network calculates that figure may determine whether you stay in business.
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Technology is another variable in the equation. Remember, the Fair Credit Billing Act passed into law before the creation of the internet: there was no eCommerce, mobile purchasing, or Internet of Things to worry about.
Fraudsters are clever; they can always find new ways to take advantage of gaps in policy and procedure. An inconsistent and uncoordinated response to contend with fraud plays heavily to their advantage, enabling the abuse of tactics like friendly fraud, family fraud, and cyber shoplifting.
What Can We Do About Outdated Procedures?
The card brands have taken some steps to try and modernize their infrastructures and processes. Both the 2018 Visa Claims Resolution and 2019 Mastercard Dispute Resolution initiatives, for example, aimed to streamline chargebacks and make the process fair for everyone. While these were improvements, there’s only so much to do at the individual card network level.
We need standardized practices in place to govern the entire payments ecosystem. And, with the Fair Credit Billing Act having been on the books for nearly a half-century, it’s well past time for a major overhaul to the existing chargeback process.
Chargebacks911® COO Monica Eaton-Cardone advocates for standardized chargeback procedures. As she explains, “Much of the confusion surrounding chargeback processes is from complicated, often redundant or inconstant procedures. Standardizing chargeback rules across card schemes would allow for much more transparency and consistent application and interpretation by merchants and banks alike.”
The FCBA was an important step forward for consumer protections in an evolving payments landscape. But after several decades of disruption in the industry, it’s time for an upgrade.
The Fair Credit Billing Act and other chargeback regulations and procedures are complicated…but chargeback management doesn’t have to be. Contact Chargebacks911 today and learn how you can stop chargebacks and recover revenue, all with the benefit of a 100% ROI guarantee.