The Fair Credit Billing Act: The Legal Grounds for Cardholders’ Chargeback Rights
The Fair Credit Billing Act gives consumers the right to dispute inaccurate or fraudulent credit charges. For instance, let’s say a consumer notices an item charged to their account for an incorrect amount or that a charge on their statement appears to be fraudulent. That person has the right to fight the charge under the FCBA.
The law doesn’t establish detailed procedures for disputes, though. It only mandates that card networks and issuers develop these procedures. While this allows for greater flexibility, it also creates some serious issues.
This article will explain what the FCBA is, what it contains, who it affects, and how it can be improved to better serve all parties involved.
What is the Fair Credit Billing Act?
- Fair Credit Billing Act
The Fair Credit Billing Act of 1974, or FCBA, is a federal law designed to protect consumers from unfair credit billing practices and build consumer confidence in then-new forms of credit in the process. The act serves as the legal basis for the chargeback process.
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The Fair Credit Billing Act of 1974 began as an expansion of the Truth in Lending Act (TiLA). This legislation requires lenders to conspicuously provide customers with loan cost information.
In practical terms, TiLA requires lenders disclose the loan terms, total costs to the borrower, and the annual percentage rate (APR) at which interest will be assessed. This must be provided before offering a loan to a potential borrower (credit cards included).
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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 disclosing maximum interest rates in a variable-rate credit contract. It also sets standards for a cardholder’s liability in the event of fraud. The best-known legacy of the FCBA, though, is the introduction of chargebacks to the payments industry.Learn more about chargeback laws
What is the Purpose of the Fair Credit Billing Act?
Primarily, the FCBA is intended to provide consumers with fair standards for credit billing. It does this by guaranteeing certain rights for consumers. This helps level the playing field between them and lenders.
The fundamental rights and responsibilities outlined in the Fair Credit Billing Act 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 complaint within 30 days.
Issuer Must Act on Consumer’s Behalf
If an 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 might initiate payment disputes by phone.
Additionally, the FCBA mandates notification and timing requirements for creditors and billing cycles. Creditors are required to:
- Provide written notice of a consumer’s right to dispute billing errors, usually provided at the opening of an account and periodically after that.
- Billing must be posted 21 days before any grace period expires or at least two weeks before a minimum payment due date if no grace period exists.
- Provide credits for overpayments and send refunds within 7 business days after receiving a request.
- Payment deadlines can’t expire before 5 p.m. on the date due.
Filing Disputes Under the Fair Credit and Billing Act
Primarily, the FCBA is intended to provide consumers with fair standards for credit billing. One key facet of this is the right to seek a correction if a charge occurs due to a mistake or fraudulent activity. So, with that in mind, let’s look more closely at the dispute process from the cardholder’s perspective.
There are three key reasons why a cardholder might be legally entitled to dispute a charge under the FCBA: billing errors, unauthorized charges, and merchant errors.
Disputing a Billing Error
If you spot a billing error, you should prepare and send a certified letter to the creditor with a return receipt and retain a copy for your records. Dispute letters should be mailed and received within 60 days of your billing statement's issue date and should include specific details that explain the reason for the dispute.
The creditor then has two billing cycles (up to 90 days) to resolve the matter. If the creditor doesn’t communicate with you by the deadline or simply refuses to abide by these standards, the FCBA allows you to pursue legal action against the creditor. The creditor may be ordered to pay legal fees and award damages. Here’s a sample letter you can use as a template for billing disputes.
Disputing an Unauthorized Charge
Victims of identity theft or account takeover fraud should seek to reverse any charges they didn’t make. Other examples include unauthorized charges made outside of a subscription cancellation, cards charged without permission, or any other transactions you can verify weren’t initiated by you or anyone in your household.
If you suspect fraud has been committed in any of these instances, you should contact the seller and try to resolve the issue. If you can’t agree on a solution, contact the bank to request a chargeback. You should also report the incident to the Federal Trade Commission and inform the three credit bureaus about the incident.
Disputing a Merchant Error
Do you have good reason to be dissatisfied with the items or services you have purchased? Maybe the item or service in question was faulty or damaged, or it never arrived or wasn’t as described?
If you can prove the discrepancy, you are encouraged to file a chargeback with your bank. But beware: never attempt this without first trying to contact the merchant and resolve the issue with them. Under the FCBA, a chargeback should only be a last resort once other options have been exhausted.
FCBA & Chargebacks
So, you know when it’s permissible to file a chargeback, according to the Fair Credit Billing Act. How do you do this, though?
The Fair Credit Billing Act doesn’t directly govern chargeback procedures; it only provides a mandate for them. Most card networks and issuers actually provide consumer fraud protections stronger than those required under the law. This can seem like an ideal setup, but the law leaves issuers and card networks to iron out the details, leading to unforeseen complications.
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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.
You should only contact the bank if you believe you have a genuine chargeback claim. All of the reasons below are considered invalid reasons for chargebacks:
- It was more convenient to deal with the bank than the merchant.
- You decided you don’t like the item you ordered.
- A family member used your card to make a purchase.
- You didn’t understand the merchant’s policies.
- You forgot you ordered the item.
Learn more about the chargeback process
Is the Fair Credit Billing Act Enough?
The card brands have taken steps to modernize their infrastructures and processes. Both the Visa Claims Resolution and the Mastercard Dispute Resolution initiatives, for example, aimed to streamline chargebacks and make the process fair for everyone. These policy updates were improvements. However, there’s only so much that can be done at the card network level.
Many of the problems tied to chargeback stem from complicated, redundant, or inconstant procedures. Standardizing chargeback rules across card schemes would allow for more transparency, consistent application, and better interpretation by merchants and banks alike.
The Fair Credit Billing Act was a significant step forward for consumer protection in evolving payments. But after several decades of disruption in the industry, it’s time for an upgrade.
The FCBA 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.