For years, regular consumers who find themselves frustrated with the confusing, underhanded or just plain misleading practices of their creditors were left to their own devices. Mortgage lenders, credit card companies and other credit-extending institutions are notorious for pushing obtuse, complicated agreements on their clients. Needless to say, this practice has caused plenty of tension between lenders and their clients over the years, and the reputation of the banking industry has suffered as a result.
Background on the Act
In this light, it shouldn't come as a surprise that creditors didn't muster much of a fight against the federal Fair Credit Billing Act. Passed in 1975, this act is structured as an amendment to the broader Truth in Lending Act. Among other things, it's designed to provide a standardized framework through which borrowers can resolve billing disputes with their creditors. A brief discussion of the act's provisions follows.
Defining Billing Errors
Much of the Fair Credit Billing Act is tailored to reduce the incidence of billing errors and create an agreed-upon means of recourse for borrowers who have been affected by such errors. As such, the act defines "billing errors" as follows:
- Legitimate credit card charges made by an unauthorized third party
- Erroneously printed balance or installment amounts
- Unclear, wrongly labeled, undated, non-itemized or otherwise "mis-identified" statement charges
- Charges that were not canceled after the applicable merchandise was returned as unwanted or defective
- Charges that were not canceled after borrower-initiated delivery cancellation
- Charges on bills that were sent to the wrong address or not sent within 20 days of the end of the applicable billing period
The act provides consumers with a defined set of protocols by which such errors can be challenged.
Challenges to Billing Errors
In order to enjoy the protection of the Fair Credit Billing Act while resolving billing disputes with their creditors, consumers must follow keep a few points in mind. For starters, they're under no obligation to pay the disputed charge until the dispute has been satisfactorily resolved. However, borrowers can't withhold payment on an entire bill to express their frustration with a disputed charge. They may only withhold the disputed amount.
A consumer who wishes to dispute a charge must send a self-addressed written complaint to the creditor within 60 days of discovering the error on their bill. This letter must clearly outline the scope and amount of the error. Within 30 days of receiving this letter, the creditor must either acknowledge receipt of the letter or take corrective action. If the lender acknowledges the letter within 30 days but fails to investigate the matter or take corrective action within 90 days, it may be in violation of the act.
The creditor must report its findings directly to the complainant. If the error is found to be the fault of the creditor, it must revise the statement to reflect the change and may not levy any additional finance charges on the disputed amount. If it's determined that there's no billing error, the creditor must "re-confirm" the amount that the borrower owes and lay out a timetable for repayment.
Implications for Consumers' Credit Ratings
During the early stages of a Fair Credit Billing Act dispute, a creditor may not report disputants as delinquent. It may do so only after acknowledging receipt of the disputant's written complaint. Even after doing so, it must notify the credit bureaus to which it reports that the borrower's delinquency is the result of a disputed charge. This may be corrected after the dispute's resolution.
Penalties for Lenders
Lenders who fail to follow the protocols outlined above may be liable for financial and criminal penalties. For starters, a lender that ignores or fails to acknowledge a complaint may be forced to forgo the full amount of the disputed charge. This stipulation applies regardless of whether the lender is found to be at fault. Meanwhile, disputants may bring private lawsuits for the amount of the disputed charge plus any associated finance charges. These can come in the form of individual or class-action suits.
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