Research · 6 min read
What a Card Issuer Has to Do When a Billing Error Is Reported
Federal law puts a clock on the issuer, not on the merchant. It starts with a written notice, runs on two deadlines, and suspends collection on the disputed amount while it runs.
Key takeaways
- A billing error notice under Regulation Z is written, reaches the address the creditor disclosed for that purpose, and arrives within sixty days of the first periodic statement showing the item.
- Property or services not accepted, or not delivered as agreed, are on the regulation's list of billing errors, as is a request for clarification or documentary evidence about a charge.
- The creditor owes written acknowledgment within thirty days and resolution within two complete billing cycles and no later than ninety days.
- While the dispute is open the creditor may not collect the disputed amount, may not accelerate or close the account for exercising the right, and may not report the amount as delinquent for non-payment of it.
- Where the cardholder pays by automatic deduction from a deposit account, the issuer may not take the disputed amount if the notice arrives up to three business days before the scheduled payment date.
- This federal procedure is not a card network chargeback; network operating rules are private contracts and were not consulted here.
Answer first: the notice has to be written, and it has to arrive within sixty days
Regulation Z defines a billing error notice as a written notice from a consumer that reaches the creditor at the address the creditor disclosed for that purpose, no later than sixty days after the creditor transmitted the first periodic statement reflecting the alleged error. The notice must let the creditor identify the consumer's name and account number, and, to the extent possible, indicate the belief that an error exists, the reasons for that belief, and the type, date and amount of the error.
Three parts of that definition are doing work. The clock runs from the statement, not from the purchase, so a charge that appears late starts its own sixty days. The address is the one the creditor disclosed for billing error notices, which is frequently not the address printed on the payment envelope. And the form is written, not a phone call.
The statute behind the rule says the same thing in older language. Section 1666 of Title 15 requires the creditor to act if it receives, within sixty days after transmitting a statement, a written notice at the disclosed address in which the obligor identifies the account, indicates a belief that the statement contains a billing error and the amount of it, and sets forth the reasons for that belief.
This procedure is not a chargeback. A chargeback is a movement of funds between a card issuer and a merchant's bank under a card network's own operating rules, which are private contracts. The federal procedure described here binds the issuer in its relationship with the cardholder. The two often run in parallel and are frequently confused, but only one of them is published in the Code of Federal Regulations.
What counts as a billing error
The regulation lists them. A billing error means a reflection on or with a periodic statement of an extension of credit that was not made to the consumer or to a person with actual, implied or apparent authority to use the card. It also means an extension of credit that is not identified in accordance with the statement-identification rules.
The third item on the list is the one that matters most for anything ordered remotely. A billing error includes a reflection of an extension of credit for property or services not accepted by the consumer or the consumer's designee, or not delivered to the consumer or the consumer's designee as agreed. Non-delivery and non-acceptance are billing errors by definition, not merely grounds for a complaint.
The list continues: a failure to credit properly a payment or other credit issued to the account; a computational or similar error of an accounting nature made by the creditor; and a request for additional clarification, including documentary evidence, about an extension of credit on the statement. That last one is unusual — a request for clarification is itself a billing error notice, which means asking for documentation starts the same clock as alleging a wrong amount.
Finally, the creditor's failure to mail or deliver a periodic statement to the consumer's last known address is a billing error, provided the creditor received that address in writing at least twenty days before the end of the billing cycle.
The statute's own list adds a specific instruction about non-delivery. Where the obligor alleges that the statement reflects goods not delivered in accordance with the agreement made at the time of the transaction, the creditor may not treat the amount as correctly shown unless it determines that the goods were actually delivered, mailed or otherwise sent, and provides the obligor with a statement of that determination.
Two deadlines, and what happens between them
The creditor must mail or deliver written acknowledgment to the consumer within thirty days of receiving a billing error notice, unless it has already completed the resolution procedures within that thirty-day period.
The outer deadline is two complete billing cycles, but in no event later than ninety days, after receiving the notice. Within that window the creditor must complete one of two paths. If it determines that the error occurred as asserted, it must correct the error, credit the account with the disputed amount and any related finance or other charges, and mail or deliver a correction notice.
If, after conducting a reasonable investigation, it determines that no billing error occurred or that a different one occurred, it must mail or deliver an explanation setting forth the reasons for its belief that the alleged error is incorrect in whole or in part, furnish copies of documentary evidence of the indebtedness if the consumer requests them, and correct any different error it did find.
Note what the regulation asks of the investigation. It requires a reasonable investigation and a written explanation of reasons. It does not require the creditor to agree, and nothing in the rule guarantees that a disputed amount will be removed.
The rules that apply while the dispute is open
This is the part of the section with the most practical force, and it applies from the moment the notice arrives until the dispute is resolved.
The consumer need not pay, and the creditor may not try to collect, any portion of a required payment that the consumer believes is related to the disputed amount, including related finance or other charges. If the cardholder has enrolled in an automatic payment plan under which the card debt is paid by periodic deductions from a deposit account, the card issuer may not deduct any part of the disputed amount or related charges, provided the billing error notice is received any time up to three business days before the scheduled payment date.
The creditor and its agents may not, directly or indirectly, make or threaten to make an adverse report to any person about the consumer's credit standing, or report an amount or account as delinquent, because the consumer failed to pay the disputed amount or related charges.
The creditor may not accelerate any part of the indebtedness, or restrict or close the account, solely because the consumer exercised these rights in good faith. The regulation adds a pointed cross-reference: a creditor may be subject to the forfeiture penalty under the statute for failing to comply with any of the section's requirements. The statute sets that forfeiture as the right to collect the amount indicated by the obligor plus finance charges on it, capped at fifty dollars.
What the creditor may still do is also spelled out. It may collect the undisputed portion. It may deduct the disputed amount and related charges from the credit limit. And it may keep showing the disputed amount on the periodic statement, so long as it indicates on or with that statement that payment of the disputed amount is not required pending compliance.
After resolution, and the boundary with the debit rules
If the creditor complies with everything the section requires and still determines that the consumer owes all or part of the disputed amount, the rule sets out the sequence. It must promptly notify the consumer in writing of when payment is due and what portion is still owed. It must allow the grace period disclosed on the account for paying that amount without additional finance or other charges.
Only then may it report the account or amount as delinquent, and only after allowing the disclosed time period or ten days, whichever is longer.
There is one more turn. If, within that time for payment, the creditor receives further written notice that any portion of the billing error is still in dispute, it may not report the amount as delinquent unless it also promptly reports that the amount is in dispute, mails or delivers to the consumer at the same time a written notice naming each person to whom it made a report, and promptly reports any subsequent resolution of the reported delinquency to everyone it reported to.
The section also ends the loop. A creditor that has fully complied has no further responsibilities under the section if the consumer reasserts substantially the same billing error, apart from that dispute-reporting duty.
One boundary is worth marking. The regulation states that a creditor must comply with Regulation E's error resolution rules rather than these paragraphs where an extension of credit is incident to an electronic fund transfer under an overdraft or minimum-balance agreement. A charge that runs through a deposit account rather than a credit line is on a different track with different deadlines, and the two should not be assumed to work the same way.
Sources
- 12 CFR 1026.13, “Billing error resolution” (Regulation Z)The definition of a billing error and its seven categories; the definition and timing of a billing error notice; the thirty-day acknowledgment and the two-billing-cycle, ninety-day outer limit; the rules pending resolution including the collection bar, the adverse-report bar, the acceleration and account-restriction bar, the three-business-day automatic-payment margin and the permitted creditor actions; the procedures where an error did and did not occur; the creditor's duties after resolution including the ten-day floor and the dispute-reporting requirement; the reassertion rule; and the cross-reference directing overdraft-incident credit to Regulation E's error resolution rules.
- 15 U.S.C. 1666, “Correction of billing errors”The statutory sixty-day written-notice requirement and its contents; the thirty-day acknowledgment and two-billing-cycle, ninety-day resolution deadlines; the requirement that a creditor may not treat an amount as correctly shown on a non-delivery allegation unless it determines the goods were sent and says so; the bar on restricting or closing an account before sending the required explanation; and the forfeiture of the disputed amount and related finance charges, capped at fifty dollars, for non-compliance.
Frequently asked questions
Does a phone call to the card company start this process?
The regulation defines a billing error notice as a written notice received at the address the creditor disclosed for that purpose. The statute uses the same construction. A telephone call may prompt a card company to act under its own policies or under a network's private rules, but the federal procedure described in Regulation Z is triggered by a written notice at the disclosed address within sixty days of the first statement showing the item.
Is a product that never arrived a billing error?
The regulation's list includes a reflection on a periodic statement of an extension of credit for property or services not accepted by the consumer or the consumer's designee, or not delivered as agreed. The statute adds that where non-delivery is alleged, the creditor may not treat the amount as correctly shown unless it determines the goods were actually delivered, mailed or otherwise sent, and gives the consumer a statement of that determination.
Can the balance be reported to a credit bureau while the dispute is open?
The section states that until the error is resolved, the creditor or its agent may not directly or indirectly make or threaten an adverse report about the consumer's credit standing, or report the amount or account as delinquent, because the consumer failed to pay the disputed amount or related charges. After the creditor completes the procedure and determines an amount is still owed, reporting becomes possible on the timeline the section sets out.
What happens to an automatic payment while a dispute is pending?
Where the cardholder has agreed to pay the card balance by periodic deductions from a deposit account, the card issuer may not deduct any part of the disputed amount or related finance or other charges if the billing error notice is received any time up to three business days before the scheduled payment date. That three-business-day margin is written into the rule.
How long can the investigation take?
Written acknowledgment is due within thirty days of receiving the notice, unless the creditor has already finished. Resolution is due within two complete billing cycles and in no event later than ninety days after receipt. Those are the two deadlines the section imposes.
Is this the same thing as a chargeback?
No. A chargeback moves funds between a card issuer and a merchant's acquiring bank under a card network's operating regulations, which are private contracts between the network and its members and were not consulted for this article. The billing error procedure is a federal rule governing what the issuer owes the cardholder. They can run at the same time and produce different results.