Credit Card Billing Errors - Fraudulent Charges, Unauthorized Charges, and Merchant Disputes
Questions and Answers Regarding Credit Card Billing Errors
Last Updated: April 22, 2015
We all seem to use a credit card to purchase everything from gas to groceries. Have you ever noticed how little actual cash you carry in your wallet these days? And that is not for a lack of it (hopefully), but the general overall convenience of paying for everything with plastic. I know people who even pay their mortgage with their credit card just to reap the rewards of frequent flyer miles. But that is a topic for another article.
In this article, we are going to deal with the mishaps you might encounter using your credit card. You might have to deal with billing errors, merchants who charge you incorrectly, someone stealing your information and using it fraudulently, or maybe you just have questions about using your credit card.
Over the years, we have talked to hundreds of people who have had these types of things happen to them. So in this article, we will address the most common questions we have received.
What Types of Problems Can Be Disputed?
The Fair Credit Billing Act and the Federal Truth in Lending Act both protect you from honest errors and outright fraud by merchants when you make the purchase through a bank issued credit card. The types of problems can be:
- Billing errors.
- Being charged for goods you ordered but never received.
- If you were charged more for a good or service than what was originally agreed upon.
- You were charged for damaged goods.
- You were charged for products that did not work as represented.
- You were charged for unsatisfactory services.
- You notice fraudulent charges on your billing statement.
What to Do If There is an Error on Your Billing Statement
The instructions are printed on your bill, probably on the back. Just follow them. The rules are simple: if you report a problem in writing within 60 days of the billing date, the bank must investigate it and respond to you within 30 days. While they are investigating, you don't have to pay the disputed amount or any finance charges on it. If their investigation shows the item was correct, they can restore finance charges retroactively and you will have to pay them.
The address to write to is on your bill. Just look for a heading like "In case of error" or "Send inquiries to".
Some banks try to resolve problems over the phone; others insist that you write a letter. If you decide to call before writing, make sure you note the date and time of the call, whom you talked to, and what they promised to do. Then send a letter to the "Send inquiries to" address mentioning this information. (Your letter should make clear that you are confirming a telephone conversation, so that the bank doesn't try twice to resolve the same problem.)
If you resolve a problem by phone, but the bank doesn't follow through, the confirming letter that you sent will preserve your rights.
What Recourse Do You Have if You Were Ripped-Off By a Merchant?
This applies to any situation listed at the beginning of this section, except billing errors. Fortunately, the U.S. Fair Credit Billing Act gives you strong protection if you used a credit card. Because this comes up so frequently, and people are understandably emotional when they think they've been cheated, I've divided up the answer into several sections that follow.
The legal language is on the back of your bill, under "Special rule for credit card purchases."
Exactly Which Purchases Qualify Under the Fair Credit Billing Act?
You are protected if all of the following are true:
- The purchase was made with a credit card. (If it was a debit card, the money is already gone from your account and the bank won't get involved.)
- The amount charged is more than $50. (The amount in dispute could be less, for example if you bought a $90 lamp but were billed $100. The amount in dispute is $10.)
- You made the purchase somewhere in your home state, or within 100 miles of your mailing address. (I am not an attorney, but my understanding is that if you are having goods shipped to you by mail or phone order, the place of purchase is the address you are having them shipped to.)
If some of the above are not true, you are still protected if the credit card company owns or operates the merchant, or the credit card company mailed you the advertisement for what you bought. In that case, your purchase is covered by the rules no matter where you bought or how much you paid.
In addition, you MAY successfully protest charges outside of these parameters, but there is no legal requirement for the credit card company to correct the problem.
Will the Bank Get Involved in a Dispute?
No. Under the law, you must first try "in good faith" to resolve the problem directly with the seller.
What Does "In Good Faith" Really Mean?
Resolving an issue "in good faith" is not defined in the law, but in practice it means that you behave like a reasonable person. The merchant is expected to act reasonably, too.
At a minimum, you should talk to the merchant's customer service department and send a follow-up letter. You have to allow the merchant a reasonable time to respond. What's reasonable? Depends on circumstances. Enough time for mail to go both ways, plus a couple of working days.
Acting "in good faith" also means that you acted promptly. Don't wait three months after the charge shows up on your bill to complain that you never got what you ordered.
Back orders are a frequent problem. If the merchant tells you the stuff is back ordered, you have the right to cancel the order. You can tell the merchant you don't want to wait and ask for the charge to be canceled. This may not happen the same day, but it should be reasonably prompt. Wait a few days and call the bank to see if the credit has come through yet.
Tips When Dealing With a Difficult Merchant
Most importantly, remember that the person you are talking to is probably not the person who caused the problem. Don't yell and don't sound crazy or make threats.
Plenty of good people work for bad companies and many work for good companies that make an occasional mistake. You may be lucky and deal with one of them. If your approach is "You dirty rotten so-and-so!" you probably won't get anywhere. If your approach is "There's a problem here; can you help me?" you'll have a better chance of getting your issued resolved.
Be prepared with specific information before you call. Have all the information such as order date, what you ordered (item number and price), when you were promised these items, your credit card number, and how much you were charged. Be clear about what you want - be it a refund, a replacement, shipment by a certain date, repair, etc. Most people respond best if you tell them clearly, calmly and reasonably what you want.
If a Merchant Won't Settle the Disagreement, Can the Bank Help?
Yes. In fact, the law says the bank must help. Write or call the credit card issuer and ask for a credit. (They call it a chargeback but they won't expect you to know that.) Use the same address as for billing errors and make sure you give these important facts in the letter:
- Date you are writing the letter.
- Your name and address, as they appear on your billing statement.
- Your account number, and the statement date on the bill.
- Explain your issue in detail - start with "I am writing about a problem with (company name). The transaction date was (mm/dd), the posting date was (mm/dd), and the transaction amount was $(amount)."
- Explain, clearly and briefly, what's wrong.
- Explain the fact you tried in good faith to resolve the problem directly with the merchant, but did not succeed. List dates you made phone calls and what was said by the merchant. Include copies of your letters to the merchant and the merchant's response, if any. (Don't overload the bank with this. You're showing that you acted in good faith; don't write a novel.)
What Does the Bank Do During a Chargeback?
The bank will credit your account and charge the amount back to the merchant. This must happen within one billing cycle, if you have done everything you were supposed to. If the merchant doesn't respond, the amount is gone from your bill forever.
If the merchant disputes the chargeback, the bank has to decide who is telling the truth. For more detailed information on chargebacks, read our article entitled "A Chargeback Provides Protection From Fraudulent Credit Card Charges".
What Happens to the Finance Charges on the Disputed Amount?
You don't have to pay them while the bank is investigating. When the bank credits your account, they are also supposed to credit your account with any finance charges that were assessed on the disputed amount from the date of purchase. They may or may not do this without further prompting from you.
Again, if the disputed charge is later found to be correct, you will have to pay finance charges on it.
What if I Paid My Bill in Full Before I Noticed a Problem?
Strictly speaking, the Fair Credit Billing Act says you may not have to pay "the remaining amount due." However, I (and some other consumers) have found that our banks aren't quite so picky.
My advice (and remember I am not a lawyer) is to follow the standard procedures for disputing a charge and simply not to bring up the issue of whether you've already paid part or all of it. Odds are, your bank won't raise that issue either.
However, it's best to examine bills carefully before you pay them. If you question a charge on the 58th day, a month or more after you've already paid it, the bank is entitled to wonder if you're really acting "in good faith" as the law requires.
How to Avoid Problems With Unauthorized Charges
Credit card fraud has been growing every year and is a serious problem. Many banks have an entire unit devoted to just identity theft and fraud protection and prevention. In the case of unauthorized use of your credit card, the Truth in Lending Act limits the personal liability to $50. There is no time limit to report a card lost or stolen, but if you alert the issuer before someone else goes shopping with your card, you aren't on the hook for the charges.
Debit cards don't get the same treatment. You have to report a lost or stolen debit card within two business days to limit personal liability for fraudulent charges to $50.
We recently stumbled upon a very useful article titled "Preventing Crooks from Getting Your Numbers." It contained the following very helpful tips.
- Don't leave your rental agreement in car where thieves can get it.
- Shred travel itineraries and ticket receipts issued by airlines and travel agents.
When at shops and restaurants:
- Refuse to write address and phone number on credit slips, or credit card account numbers on checks.
- Don't let clerk write your driver's license number on your check if it's the same as your Social Security number.
When using a calling card:
- Don't use a personal identification number (PIN) that's obvious, such as a birth date, work extension, or consecutive numbers.
- Cover the phone with your body to prevent anyone from seeing what you dial; if you must tell an operator your account number, assume people are eavesdropping.
When at home:
- Destroy all pre-approved credit card applications; when cleaning files, shred old statements, pay stubs, and checks.
- Don't give card numbers to callers who say you've won a prize.
- If monthly statement doesn't arrive on time, call the issuer immediately.
How to Handle a Claim Which Involves Goods and Services
If your problem concerns the quality of goods or services purchased on your credit card, the Fair Credit Billing Act gives you the right to dispute the charge and stop payment on that portion of the bill until the matter is resolved by the issuer.
According to the law, the goods must have cost at least $50 and the purchase had to have been made in your home state or within 100 miles of your mailing address.