The Fair Credit Billing Act (FCBA)

Purpose and Scope:
The Fair Credit Billing Act (FCBA- 15 U.S.C. Sec. 1666) is part of the federal Truth in Lending Act. FCBA establishes procedures for complaining about billing errors and requires creditors to respond to such complaints, either by correcting the error or by explaining any rejection of the billing error complaint.

FCBA applies:
To open-end consumer credit transactions involving billing errors (i.e., credit cards, store charge accounts).

Billing errors (mistakes) include (12 C.F.R. Sec. 226.13):
Bills for transactions that never occurred.
Transactions by unauthorized people.
Bills for erroneous amounts.
Bills for goods/services that were not delivered or were not accepted.
Failure to properly apply credit to your accounts.
Computation errors.
Bills sent to incorrect addresses, provided that the creditor received notice of the change of address at least 20 days before the end of the billing cycle for which the statement was sent out. (Note: disputes over "quality" of goods must be raised as a claim or defense--it is not a billing error.)

Billing Error Resolution Procedures.
Consumer must notify creditor of error in writing within 60 days of creditor's transmittal of bill to consumer.
If the error was failure to transmit the billing statement, then the 60-day period runs from the time when the creditor should have sent it.
If the error is failure to credit a payment, the 60-day period begins to run when the credit should have appeared on the statement.

The consumer's billing error notice must include sufficient information to enable the creditor to identify the consumer and his/her account number and to understand the nature of the complaint. The creditor may specify on the statement that the consumer should not transmit the notice of error on the payment medium. The creditor must disclose on the billing rights statement or on the periodic statement an address for billing error inquiries. The notice must be received at that place for notice to be effective.

After the consumer gives notice, he/she may withhold payment of the disputed amount or pay the amount without waiving billing error rights. However, paying the disputed amount does waive assertion of claims and defenses against a credit card issuer (see below). For example, if there is a dispute over the "quality" of goods and the consumer pays the bill, he or she has no remedy against the card issuer because payment of the amount precludes asserting the claim or defense, and poor quality is not considered a billing error.

Procedures creditors must follow upon receipt of the notice.
Creditor must conduct a reasonable investigation, unless creditor corrects the account as requested or the consumer withdraws the complaint.

The creditor shall mail or deliver written acknowledgement of the complaint to the consumer within 30 days of receiving a billing error notice, unless the creditor has complied with appropriate resolution procedures within that 30-day period.

The creditor must comply with the resolution procedures within two billing cycles (but in no event later than 90 days) after the creditor's receipt of the debtor's notice of error.

Resolution procedures:

If creditor determines that error has occurred, creditor shall, within the time limits above:
Correct the error and credit the consumer's account with any disputed amount and associated finance charges, and
Mail or deliver a correction notice to consumer.

If, after conducting investigation, creditor determines no billing error occurred or that a different error occurred from that asserted, the creditor shall, within time limits above:
Mail or deliver to consumer an explanation setting forth reasons creditor believes alleged error is incorrect in whole or part.
Furnish copies of documentary evidence of consumer's indebtedness, if consumer so requests.
If a different billing error occurred, correct the error and credit the consumer's account.

Until the billing error is resolved under the FCBA procedures, the following rules apply:

Creditors may not:

Take any action to collect the amount in dispute. Creditor may seek collection of unpaid, undisputed amounts. If the consumer keeps a deposit account with the creditor and has direct payment deducted automatically, the creditor may not deduct any part of the disputed amount or related finance charges if the notice of error is received any time up to 3 business days before the scheduled payment date.

Restrict or close the account in issue based on the debtor's failure to pay the disputed amount. The creditor may decrease credit limit by amount in dispute.

Report or threaten to report adversely on the debtor's credit rating based on the disputed amount.

If, after the creditor follows resolution procedures, and the consumer still claims there is an error, the creditor may report the delinquency to a credit reporting agency provided:
Creditor also reports that the amount is in dispute.

Mails or delivers to consumer the name and address of each person to whom creditor made the report, and

Promptly reports any subsequent resolution of reported delinquency to all persons to whom creditor made the report.

A creditor who has fully complied with FCBA procedures is under no further responsibilities if consumer reasserts same billing error.

Cardholder Liability for Unauthorized Use:
Credit card holders are liable for unauthorized use of the card only up to $50. 15 U.S.C. Sec. 1643.

Truth in Lending Act limits liability for unauthorized use.

A cardholder shall be liable for the unauthorized use of a credit card only if:
The card is an accepted credit card,
The liability is not in excess of $50.00,
The card issuer gives adequate notice to the cardholder of the potential liability,
The card issuer has provided the cardholder with a description of a means by which the card issuer may be notified of loss or theft of the card,
The unauthorized use occurs before the card issuer has been notified that an unauthorized use of the credit card has occurred or may occur as the result of loss, theft, or otherwise, and
The card issuer has provided a method whereby the user of such card can be identified as the person authorized to use it.
Except as provided above, the cardholder incurs no liability from the unauthorized use of a credit card. Therefore, if cardholder notifies issuer before unauthorized charges are made, the cardholder is not liable for anything.

In action to enforce liability, the burden of proof is upon the card issuer to show that the use was authorized or, if the use was not authorized, then issuer must show the conditions of liability for unauthorized use have been met (and then liability is only up to $50.00).

"Authorized" versus "unauthorized" use.
Unauthorized use of card occurs only where there is no actual, implied, or apparent authority for such use by the cardholder.

Many states interpret act's definition of "unauthorized use" to protect cardholders only against theft, loss, or similar wrongdoing.

Fact that card holder orally limited spending amount to $500 did not mean charges made by other person over $500 were "unauthorized" and cardholder was liable for all charges. Martin v. American Express, Inc., 361 So.2d 597 (Ala. Civ. App. 1978).

Use of card by person authorized to use it for specific purpose, but who used it otherwise, was not an "unauthorized" use limiting credit cardholder's liability. Master Card v. Town of Newport, 396 N.W. 2d 345 (Wis. 1986).

Letter to credit card issuer to limit credit limit did not shield cardholder from liability for excess charges by an apparently authorized person. Martin v. American Express. The court remarked: "We are unaware of any requirement...which would compel a credit card issuer to undertake a policy whereby the issuer would see to it that charges on a cardholder's account do not exceed a specified amount."

"Notification to card issuer has no bearing whatsoever on whether the use is authorized, so as to entitle a cardholder to statutory limitation of liability." Walker Bank and Trust Co. v. Jones, 672 P.2d 73 (Utah 1983).

State law imposes no duty on issuer to mitigate despite cardholder notification that an authorized user is making unauthorized charges. American Express v. Web, 1991 W.L. 124625 (Ga. July 3, 1991).

But see Standard Oil Co. v. Steel, 489 N.E. 2d 842 (Ohio Misc. 1985). Cardholder who voluntarily gave her card to a friend liable for all charges friend made before she notified card issuer of unauthorized use, but not for charges made after notification.

Remedies
Because the FCBA is part of TILA, it carries the same remedies as TILA, such as:
Actual damages in all cases.
Attorneys' fees and court costs for successful enforcement and rescission actions.
Statutory damages.

In addition to the remedies available for TILA violations, a specific remedy is available to the debtor if the creditor fails to comply with the FCBA. If the creditor violates the billing error resolution procedures, the consumer nonetheless recovers from creditor the disputed amount and any finance charges thereon up to $50. 15 U.S.C. Sec. 1666(e).

Cardholder's Claims and Defenses
Claims and defenses may include:
Unauthorized use of the card,
Dispute as to quality of merchandise.
Nondelivery of goods,
Claims that can be asserted under the billing error resolution procedures.
A consumer has right to assert against card issuer claims or defenses concerning property or services purchased with a credit card, if:
The consumer has made a good faith effort to resolve the problem with the merchant honoring the card;
The amount of the initial transaction exceeds $50;
The initial transaction was in the same state as the cardholder's designated address or within 100 miles of such address; and
The merchant is not controlled by or the same as the card issuer.

Once the criteria have been met, the consumer may withhold payment of the disputed amount to the extent of the credit outstanding on that transaction and finance charges attributable thereto. Payment of the disputed amount waives right to assert claims or defense as to the card issuer.
Payments already made shall be applied in the following order:
Late charges in the order of their entry.
Finance charges in the order of their entry.
Other debits in the order of their entry.
If only part of a single transaction is disputed (i.e., multiple purchases at the same time), payments shall be prorated according to prices and applicable taxes.
Relationship to Billing Error Resolution procedures.
Even though certain merchandise disputes, such as nondelivery of goods, may also constitute "billing errors," the protections operate independently. For example:
A cardholder who asserts billing error involving undelivered goods may institute error-resolution procedures, but whether or not the card issuer has done so, the cardholder may assert claims or defenses, as well.
Conversely, the consumer may pay a disputed balance and thus have no further right to assert claims or defense, but still may be able to assert a billing error if notice of the error is given in the proper time and manner.
An assertion that a transaction resulted from "unauthorized" use of a credit card could also be both a "defense" and a billing error.
A dispute over "quality" may only be asserted as a claim or defense, not a billing error, since it is not within the billing error provisions.
State statutes may be more favorable to consumers. See Mass. G.L.A. c. 255, Sec. 12F, which makes credit card issuers subject to all defenses a consumer may have arising from a sale or lease transaction without any condition or limitation.