Fair Credit Billing Act: What Is It and Who Does It Protect?

The Fair Credit Billing Act (FCBA) is known for providing a range of consumer protections, including the ability to file chargebacks on unauthorized charges. However, the FCBA doesn’t only cover credit card chargebacks. The law offers a range of other protections and conditions governing credit in the United States with which all business owners should be familiar.

As transactions continue to shift away from cash, credit and debit card regulations are more critical to understand than ever. With 94% of Americans earning over $50,000 holding a credit card, not accepting this form of payment reduces your exposure to a large number of consumers.^[1]Federal Reserve. “Economic Well-Being of U.S. Households in 2020 – May 2021“. Accessed October 19, 2022. As a business owner in the United States, your customers now expect you to accept credit and debit card transactions.

Whether you own a business or simply use a credit card, understanding the Fair Credit Billing Act will help you understand your rights and obligations. This guide explores the core details of the FCBA—its purpose, its relation to chargebacks, and other related topics.

What Is the Fair Credit Billing Act?

The Fair Credit Billing Act (FCBA) is an amendment to the Truth in Lending Act, another law passed in 1968 aimed at ensuring lenders provide transparent information about rates and other credit details.^[2] U.S. Treasury. “Truth in Lending“. Accessed October 19, 2022. While the FCBA covers a range of credit-related topics, much of its impact relates to protecting consumers and solidifying credit account holders’ right to dispute charges.

Also, it’s worth mentioning the FCBA doesn’t provide protections for electronic funds transfers, debit card transactions, and other non-credit-related transactions. Instead, the United States passed the Electronic Fund Transfer Act (EFTA) in 1978 to protect these transactions.^[3]Federal Reserve. “Electronic Fund Transfer Act“. Accessed October 19, 2022. However, this law has its own details and nuances, so make sure to explore it independently if you want to understand the rights of debit cardholders and regulations for other payments.

The Fair Credit Billing Act traces its origins to October 28, 1974. Over 45 years since the law passed, the FCBA remains critical in regulating open-end credit accounts.

What Is the Purpose of the Fair Credit Billing Act?

While the Fair Credit Billing Act protects consumers using credit cards and other open-end credit accounts, one of its primary purposes is to instill confidence in consumer finance products. If the protections outlined in the FCBA were not afforded to Americans, introducing credit cards to the U.S. market would have been much more challenging, as cardholders would face exposure to liability for third-party fraud and a host of other problems.

What Does the Fair Credit Billing Act (FCBA) Do?

When assessing the outcomes of the FCBA, it’s critical to view the law from both the consumer and credit card issuer’s perspectives. Let’s explore how this impacts both parties involved in a credit transaction:

Types of Credit the FCBA Protections Apply To

The FCBA protects open-end credit accounts, including credit cards and charge accounts. A credit card issued by a financial institution allows the cardholder to borrow funds for purchases or cash advances. Meanwhile, a charge card is a type of credit card that requires the balance to be paid off in full at the end of every billing cycle.

Both a credit and a charge account are revolving forms of credit. Other forms of credit—such as mortgages—don’t apply to the FCBA. Other regulations are in place to manage different forms of credit in the U.S. economy.

Fair Credit Billing Act vs. Fair Credit Reporting Act

There are various laws protecting consumers in the United States. However, many consumers and merchants misunderstand the disparities between different credit-related acts. The FCBA regulates various credit-related activities, such as disputes, resolution timelines, etc.

However, the Fair Credit Reporting Act, enforced by the Federal Trade Commission, dictates specific credit reporting standards in the United States. This law seeks to prevent creditors and credit reporting bureaus from engaging in unfair credit reporting practices, protecting consumers from credit data issues, credit privacy breaches, credit misreporting, and other credit reporting-related problems.

FCBA Consumer Protections

The Fair Credit Billing Act is famous for its consumer protections. Let’s explore some of the critical consumer protections afforded by this law:

The FCBA gives consumers the right to contest charges within 60 days of receiving their credit account statement. This protection allows credit account holders to contest various other charges, including charges from merchants who did not provide promised goods or services or fraudulent charges from scammers who obtained their personal information.

If a consumer’s credit card is lost or stolen, they are only liable for up to $50 of the resulting charges if they fail to report the card stolen before the charges are processed. If a thief uses a card after the consumer reports it lost or stolen, the consumer does not have any liability.

While the FCBA primarily targets card issuer responsibilities, it also provides recourse against merchants. If consumers want to file a dispute with a merchant due to the quality of goods or services, they can do so if the purchase exceeds $50. However, the purchase must also have been made within 100 miles of the billing address attached to the holder’s current credit account or within their home state.

That said, there are important differences between a refund and a chargeback, with the former posing no negative impact on your merchant account. To avoid chargebacks, learning how to write a return policy that is clear and easy to understand. This will lower the chances of consumers opening a dispute against merchants with their issuing bank. Additionally, utilizing authorization hold periods—during which a customer cannot file a chargeback dispute because the transaction has not been finalized—is yet another method merchants can use to reduce their chargeback exposure.

FCBA Creditor Responsibilities

In addition to the dispute timelines outlined in other sections within this guide, creditors have a range of other responsibilities according to the FCBA. Let’s explore some additional FCBA requirements in detail below:

• Refund overpayments to credit account holders promptly.
• Do not threaten credit account holders with credit score damage during a formal dispute process.
• Remove any interest owed on money refunded during a dispute.
• Offer written notice to new credit account holders about charge dispute rights.
• Provide billing statements to credit account holders owing more than one dollar.

There are various other creditor responsibilities outlined in the FCBA. If you want to open a business providing credit to consumers, speak with an attorney about your obligations.

The Fair Credit Billing Act & Chargebacks

The FCBA laid the foundation for the modern chargeback landscape in the United States. As credit card issuers must provide their cardholders with 60 days to file disputes, this means companies must be prepared for disputes occurring long after a product is sold.

While card issuers deal with these disputes for their cardholders, merchants often suffer the consequences. As a merchant, your business must incorporate strong chargeback prevention strategies. Successful chargebacks result in funds being returned to a consumer, impacting your bottom line. Without preventative measures in place, your business can be exposed to friendly fraud, true credit card fraud, and a host of other problems related to credit card processing.

Likewise, card issuers and credit card processors don’t want to partner with merchants with high chargeback rates. Because chargebacks cost card networks and processors money, they pass these costs onto merchants in the form of chargeback penalty fees if the consumer wins the dispute. Additionally, too many chargebacks may result in your business losing its right to process payments altogether.

While it’s easy for business owners to view the requirements negatively, there are some benefits. First, the FCBA creates an easy framework for card issuers to manage chargeback expectations. Secondly, if the FCBA didn’t exist, credit card use would likely be much less frequent, and businesses benefit from dependable access to credit in the United States.

FCBA Examples

If you want to gain a deeper understanding of the Fair Credit Billing Act, exploring the below examples of the FCBA in use can help.

A thief uses a stolen credit card at a gas station to purchase gasoline for their car. The cardholder of the stolen credit card reports their card was stolen and contests the charge a month after they receive their credit card bill. As long as the cardholder did not authorize the charge on their credit card, their liability has a $50 limit.

A card issuer receives a dispute from a card holder claiming their credit card bill contained a charge not authorized by the primary cardholder. To comply with the FCBA, the card issuer must respond to the dispute within 30 days of receiving it.

The Fair Credit Billing Act: Final Thoughts

The FCBA aims to raise consumer confidence in credit purchases through consumer protections. For merchants, chargeback exposure can be a frustrating consequence of this law, yet it’s important to remember that comes with benefit of increased credit card usage. By investing in chargeback prevention tools, merchants can limit exposure to costly chargeback disputes and protect cash flow, all while increasing their bottom line through the acceptance of credit card payments.