What Is the Fair Credit Billing Act?

FT Contributor
A lender at a desk, looking at a credit report and fixing a billing error as part of the Fair Credit Billing Act.

The Fair Credit Billing Act (FCBA) was enacted to protect consumers’ credit histories by requiring that lenders fix billing errors in a fair and timely manner. The Act covers open-end credit such as revolving lines of credit and credit cards.

If a credit card issuer accidentally mails your billing statement to the wrong address and you fail to make a payment on time, you have the right to dispute the late payment because of the card issuer’s failure to mail the statement in advance to you. You will not be responsible for any late fees or finance charges associated with their error. If the past-due amount was reported to the credit bureaus, the card issuer must correct the mistake promptly.

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The Basics of the Fair Credit Billing Act

Scenarios like the one described above are alarming to consumers, but the Fair Credit Billing Act can help greatly. The FCBA establishes rules that creditors must follow. These rules are meant to protect consumers from errors on their credit reports, while allowing time for a thorough investigation of any credit report dispute.

Consumers have the right to dispute incorrect or unauthorized charges, to withhold payment of a charge in dispute until the investigation is complete, and to receive a prompt refund or credit to their account.

Fair Credit Billing Act Definition

According to the FTC, the Fair Credit Billing Act “requires prompt written acknowledgment of consumer billing complaints and investigation of billing errors by creditors.” Creditors are prohibited from taking actions that can negatively affect an individual’s credit history while they wait for an investigation to be completed. The Act also requires that financial institutions credit a consumer’s account and refund overpayments promptly.  

A Brief History of the Fair Credit Billing Act

The Fair Credit Billing Act came about as an amendment to the Truth in Lending Act (TILA) of 1968. TILA was designed to ensure that consumers are treated fairly by lenders and informed about the true cost of borrowing.

As consumer needs changed, TILA expanded its authority — the Fair Credit Billing Act was enacted in 1974 to add consumer protections for open-end accounts such as revolving-charge accounts or credit cards.

How Does the Fair Credit Billing Act Protect Consumers?

The Fair Credit Billing Act offers consumers a variety of revolving credit account protections. It sets strict guidelines for creditors to protect consumers from having their credit history unfairly damaged. The regulations include:

  • $50 liability cap: A cardholder is not responsible for unauthorized charges over $50 if the fraud is reported promptly.
  • Non-payment of disputed charges: Cardholders do not have to pay for the questioned amount while waiting for the card company to investigate and resolve the dispute.
  • Non-reporting of disputed charges: A creditor cannot attempt to collect the disputed amount, take legal action, report you as delinquent, or close your account while you wait for the decision on the disputed charge.
  • Overpayment: Credit card companies must credit your account or issue a refund to you promptly for any overpayments you have made. If you don’t claim your credit in six months, the card issuer must mail you a refund.
  • Prompt resolution: A creditor must resolve and respond to your dispute with an explanation of their findings within two billing cycles or a maximum of 90 days after receiving your dispute letter.
  • Right to dispute: You have the right to dispute any incorrect, unauthorized, or fraudulent billing charges.
  • Statement mailing: A card issuer must send your bill to arrive at least 14 days before the payment due date. The CARD Act of 2009 increased it to 21 days before the payment due date.

Correcting Common Credit Reporting Mistakes

Mistakes happen; and unfortunately, so does fraud. The Fair Credit Billing Act is there to protect consumers in the event of credit reporting mistakes, but a consumer must find the issue first. FCBA protections aren’t automatic. Being proactive and regularly monitoring your credit report for unusual activity or credit score changes is the first step. Here are some credit report errors and red flags to look out for:

  1. Accounts you don’t recognize: If you see credit accounts that you don’t remember opening and believe they don’t belong to you, your identity may have been stolen and is being used by someone else.
  2. Inaccurate payment history: Look for any reported late or missed payments. Even one incorrectly reported late payment could drop your credit score significantly.
  3. Outdated credit limit information: Your credit utilization ratio is an important component of your credit score. It measures how much credit you’re using from what’s available to you. Incorrect credit limits or balances could show your credit utilization ratio as higher than it actually is.
  4. Wrong personal information: Review personal details such as your name and address carefully. If your report lists your name as misspelled or incomplete or your home address is wrong, it could be a sign that someone is using your identity or that the credit bureau has confused you with someone else.

If you find any errors in your credit report, contact the credit reporting bureau and/or the card issuer to take advantage of your Fair Credit Billing Act rights and protections by disputing the errors.

How the Act Ensures Compliance

The Consumer Financial Protection Bureau (CFPB) is tasked with enforcing FCBA regulations. Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB works with consumers to ensure banks and lenders comply with the rules set forth.

Individuals can file a complaint with the CFPB. When you submit a complaint, the Bureau will work with the financial institution or lender to get you a response or resolution as soon as 15 days from the complaint report.

How to Dispute Charges on Your Credit Report?

If there are charges on your credit report you believe are incorrect, the Fair Credit Reporting Act gives you the right to dispute any incorrect information which could affect your credit score. Here are the steps the FTC recommends you follow for disputing charges on your credit report:

  • Contact the creditor to report the problem;
  • Make notes of when you contacted the creditor and who you spoke with;
  • Ask for the billing inquiry address to send a written confirmation of the dispute;
  • Write a dispute letter and include your name, current address, account number, and a description of the incorrect charges;
  • Send a follow-up letter by certified mail (to confirm receipt date) within 60 days of the dispute that confirms you reported the problem;
  • Save a copy of the dispute letter;

The creditor must notify you in writing of the findings of their investigation. If the creditor finds the disputed charge(s) is a fraud or a mistake, they must credit your account for the incorrect amounts, reverse any related late fees and finance charges, and remove it from your credit report. If they find the charge or reporting is correct, they must provide an explanation in writing.

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