Credit Card Law: Protecting Consumers From Excessive Charges
The Credit Card Accountability Responsibility and Disclosure Act of 2009, or Credit CARD Act, is a consumer protection law that limits how credit card companies can charge consumers. The Act was designed to protect consumers from unfair practices by credit card issuers, requiring more transparency in credit card terms and conditions and adding limits to charges and interest rates. The Credit CARD Act also requires credit card companies to provide consistent payment deadlines and inform consumers of how long it would take to pay off their debt if they only made the minimum payment. Additionally, the Fair Credit Billing Act (FCBA) and the Fair Credit Reporting Act (FCRA) are federal laws that protect consumers from unfair billing practices and address practices involving the use of a consumer’s personal information.
| Characteristics | Values |
|---|---|
| Name of the Law | Fair Credit Billing Act (FCBA) |
| Year of Enactment | 1974 |
| Purpose | To protect consumers from unfair billing practices |
| Scope | Applies only to open-end credit, such as credit cards and lines of credit. It does not apply to loans like auto loans or mortgages. |
| Billing Errors Covered | Unauthorized charges, charges with incorrect dates or amounts, and calculation errors |
| Time Limit for Disputes | Consumers have 60 days from receiving their bill to dispute a charge |
| Dispute Resolution Timeframe | The card issuer or lender has 30 days to acknowledge receipt of a complaint and 90 days to complete an investigation |
| Liability Limit for Unauthorized Use | $50 or the value obtained through unauthorized use, whichever is less |
| Credit Card Obtained Through Robbery or Fraud | Consumers may dispute charges by phone and are protected from liability |
| Geographic Limitation | The act defers to state or other applicable laws to determine the location of a transaction, especially for mail, internet, or telephone orders |
| Security Interest | Consumers must affirmatively agree to security interests, which must be disclosed in the issuer’s account-opening disclosures |
| Business Use of Credit Cards | If 10 or more credit cards are issued to employees of an organization, the issuer and organization can agree to liability for unauthorized use outside of FCBA parameters |
| Name of the Law | Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) |
| Year of Enactment | 2009 |
| Purpose | To protect consumers from unfair practices by credit card issuers and promote transparency in credit card terms and conditions |
| Key Provisions | Limits fees and interest rate increases, requires consistent payment deadlines, mandates disclosure of debt repayment timelines, and sets a minimum age of 21 to open a credit card without a cosigner |
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What You’ll Learn
- The Fair Credit Billing Act (FCBA)
- The Credit CARD Act
- The Electronic Fund Transfer Act (EFTA)
- The Fair Credit Reporting Act (FCRA)
- The Real Estate Settlement Procedures Act (RESPA)
The Fair Credit Billing Act (FCBA)
The Act provides consumers with protection against a range of unfair billing practices, including:
- Charges not authorized by the consumer.
- Charges with the wrong date or amount.
- Charges for goods or services that were not delivered or did not match the description.
- Calculation errors.
- Charges for which the consumer needs clarification.
- Billing statements delivered to an incorrect address.
If a consumer disputes a charge, they have 60 days from receiving their bill to notify the card issuer or lender. The FCBA also outlines the process for resolving disputes. The card issuer or lender has 30 days to acknowledge receipt of a complaint and 90 days to complete an investigation. During the investigation period, the lender cannot try to collect payment on the disputed amount, charge interest, or report it to credit bureaus as late. If the dispute is found to be valid, the lender must correct the error and refund any associated fees or interest. If the dispute is deemed invalid, the lender must explain its findings and provide documentation to the consumer.
The FCBA also limits the liability of cardholders in cases of lost or stolen credit cards to $50. However, if an authorized user makes unauthorized purchases, those charges are not covered by the FCBA, and the cardholder is liable for them. Consumers can challenge the results of the lender’s investigation within 10 days of receiving the outcome.
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The Credit CARD Act
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) is a federal statute enacted by the 111th US Congress and signed into law by President Obama on May 22, 2009. The act was designed to protect consumers from unfair practices by credit card issuers and to encourage the flow of information, allowing consumers to make more informed choices.
The act also amends the Electronic Fund Transfer Act to address fees and other terms of gift certificates, store gift cards, and general-use prepaid cards. It restricts the fees that can be charged for these and eliminates “fee harvester cards” by limiting the first-year annual fee for a credit card to 25% of the credit limit.
Additionally, the Credit CARD Act amends the Fair Credit Reporting Act, requiring FTC rulemaking to mandate that advertisements for free credit reports disclose that free credit reports are available under federal law at annualcreditreport.com. It also amends the Mortgage-Related Provisions of the Omnibus Appropriations Act of 2009 to clarify the FTC’s rulemaking authority under that act.
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The Electronic Fund Transfer Act (EFTA)
The EFTA was amended by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) to address fees and other terms associated with gift certificates, store gift cards, and general-use prepaid cards. This amendment ensured that consumers were better protected and informed about any fees or charges related to these types of purchases.
The EFTA is an important piece of legislation that helps to regulate the electronic fund transfer process and protect consumers from unauthorized transfers and associated losses. By requiring financial institutions to adopt consistent practices and procedures, the EFTA provides clarity and security for all participants in the electronic fund transfer system.
Additionally, the EFTA plays a crucial role in promoting transparency and accountability in the financial industry. Its provisions ensure that financial institutions are held responsible for addressing errors and resolving disputes related to electronic fund transfers. This helps to build trust and confidence among consumers who rely on electronic means for their financial transactions.
Overall, the Electronic Fund Transfer Act is a comprehensive legal framework that safeguards consumers’ rights and interests in the context of electronic fund transfers. Its implementation has significantly contributed to the security and reliability of electronic transactions, fostering a more stable and consumer-friendly financial environment.
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The Fair Credit Reporting Act (FCRA)
The FCRA regulates the collection, dissemination, and use of consumer information, including credit information. It protects information collected by consumer reporting agencies such as credit bureaus, medical information companies, and tenant screening services. Information in a consumer report cannot be provided to anyone who does not have a purpose specified in the Act.
Companies that provide information to consumer reporting agencies have specific legal obligations, including the duty to investigate disputed information. Creditors who furnish information about consumers to consumer reporting agencies must provide complete and accurate information, investigate consumer disputes, correct or delete inaccurate information within 30 days of receiving a dispute, and inform consumers about negative information within one month.
Users of consumer information for credit, insurance, or employment purposes have certain responsibilities under the FCRA. They can only obtain consumer reports for permissible purposes, must notify consumers when adverse action is taken based on such reports, and must identify the company that provided the report so that consumers can verify or contest its accuracy.
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The Real Estate Settlement Procedures Act (RESPA)
RESPA requires lenders and other parties involved in mortgage lending to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. These disclosures include a Good-Faith Estimate of Settlement Costs (GFE), a Special Information Booklet, a HUD-1/1A settlement statement, and Mortgage Servicing Disclosures. RESPA also prohibits certain abusive practices, such as kickbacks, referral fees, and dual tracking, and imposes limitations on the use of escrow accounts.
One of the key provisions of RESPA is the prohibition of kickbacks and referral fees. Lenders are prohibited from paying or receiving fees for the referral of mortgage loan settlement business, including agreements related to federally related mortgages. Fees for mortgage-related services must be disclosed, and no person may receive any portion, split, or percentage of a fee except for services actually performed. This helps to ensure that consumers are not paying unnecessary fees and that the costs of real estate transactions are transparent.
In 2011, the Consumer Financial Protection Bureau (CFPB) assumed enforcement and rule-making authority over RESPA. The CFPB has since published final rules implementing provisions of the Dodd-Frank Act, which directed the CFPB to publish a single, integrated disclosure for mortgage transactions, including mortgage disclosure requirements under the Truth in Lending Act (TILA) and sections 4 and 5 of RESPA. These integrated forms, timing, and disclosure requirements are now housed under Regulation Z for most closed-end consumer mortgage loans.
There have been proposals to modify RESPA, including changing the “open architecture” system, where a customer can choose any service provider for each service, to one where services are bundled, but the real estate agent or lender must pay directly for all other costs. While RESPA primarily focuses on real estate transactions and mortgage lending, other laws such as the Fair Credit Billing Act (FCBA) and the Credit CARD Act provide protections for consumers in the context of credit card billing disputes and related issues.
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Know your rights when facing credit card fraud
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.
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Alice Lesperance
Editor, Credit Cards
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Alice Lesperance is an editor on the Bankrate team. Alice has more than 9 years of professional writing and editing experience, and she is passionate about helping people at all stages of their credit card journeys take control of their personal finances.
Published on August 30, 2024 | 5 min read
The advice in this article is offered by the Bankrate editorial team independent of any bank or credit card issuer. This article may contain references to products from our partners, and terms may apply to offers linked or accessed through this page. Content is accurate as of posting date, but offers mentioned may have expired.
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Table of contents
- Spotting credit card fraud
- Reporting credit card fraud
- Protecting yourself from fraud
Key takeaways
- Credit card fraud is on the rise, but there are many systems in place to protect your identity and your finances
- Many credit card companies offer zero-liability fraud protection if you report the fraudulent charges within 30 days
- The Fair Credit Billing Act limits liability to $50 if you report the fraudulent charges within 60 days of receiving your statement
Credit card fraud has been on the rise in recent years. The Federal Trade Commission’s most recent database indicates that there were more than 416,000 cases of credit card fraud reported in 2023, making it one of the most common forms of identity theft.
Fortunately, there are many systems in place to protect you from potential credit card fraud. Two-factor authentication gives you the opportunity to confirm your own identity before accessing bank accounts and other financial services, and credit freezes allow you to prevent people from taking out new lines of credit under your name. Digital wallets and virtual credit cards provide even more protection during in-person and online credit card transactions.
If you do become the victim of credit card fraud, you have rights. The Fair Credit Billing Act (FCBA) offers consumer protections against inaccurate or fraudulent credit card charges and other billing errors, and many credit card issuers offer zero-liability fraud protection that protects you from owing money when your card is used fraudulently.
Here’s how to take advantage of those rights and get your life — and your finances — back in order.
Spotting credit card fraud
One of the best ways to spot credit card fraud is by reviewing your credit card transactions on a regular basis. Some people check their online account or app every day or every week, looking over recent charges and confirming their accuracy. Other people use their monthly credit card statement as an opportunity to review transactions and make sure everything looks correct.
In many cases, your credit card issuer may spot potential credit card fraud before you do. You might receive a mobile alert, for example, asking you to verify whether your most recent credit card transaction was legitimate. This doesn’t necessarily mean that your credit card account has been hacked, of course. You may receive this kind of mobile alert when you make an unusually large purchase or when you make multiple back-to-back purchases at the same retailer. Your issuer simply wants to make sure that the charges are coming from you and not from an identity thief.
Sometimes your credit card issuer will lock your credit card until you confirm or deny the authenticity of a recent charge. This prevents a potential fraudster from making multiple charges on your account. While these kinds of credit card locks can be annoying, they’re one of the best ways to protect you from credit card fraud.
Reporting credit card fraud
If you notice fraudulent charges on your credit card, here’s what you can do to report the charges and protect yourself:
- Notify your credit card issuer immediately. Start by calling the number on the back of your credit card. From there, you should get more detailed information on what to do next.
- Change your passwords. After you discuss the fraud with your credit card issuer, it’s a good idea to change the passwords on your credit card accounts. You may also want to change the passwords associated with online banking, online shopping, email accounts and so on.
- Send your dispute statement, if necessary. If your credit card issuer requests a dispute statement, use the FTC’s dispute letter template to craft your dispute. Then submit the letter to your credit card issuer as directed—either through the mail or online.
- Continue making payments on your credit cards. While credit card issuers cannot try to collect payment, charge interest or report any late payments on disputed charges, you’ll still need to make regular monthly payments on any other outstanding credit card balances.
- Wait for your new credit card to arrive. If there is any potential evidence of fraud on your account, your credit card issuer should send you a new credit card with a new 16-digit credit card number. You may receive an instant-use credit card that allows you to make online purchases and use digital wallets while you wait for your physical card to arrive in the mail.
- Update your accounts with your new credit card number. Once you have your new credit card number, you may need to update accounts with utility providers, online retailers, subscription services and so on. If you haven’t already updated your digital wallet, you’ll want to do so now as well.
Are you liable for fraudulent credit card charges?
Many credit card companies offer zero-liability fraud protection if you report charges within 30 days. This means that you won’t be liable for any fraudulent purchases made on your credit card account.
The Fair Credit Billing Act limits your liability to $50 if you report fraudulent charges within 60 days of receiving your credit card statement. This means that even if your credit card issuer doesn’t offer zero-liability protection, you won’t owe more than $50.
If you fail to report the credit card fraud within the time limits, you may be responsible for paying the entire bill.
Learn more: Bank refuses to refund fraudulent charges
Protecting yourself from credit card fraud
One of the best ways to protect yourself from credit card fraud is by freezing your credit. While your credit is frozen, it is impossible to open new credit cards, take out new loans or apply for new lines of credit under your name.
Each of the three major credit reporting bureaus (Experian, TransUnion and Equifax) allows you to freeze your credit for free, and you’ll need to unfreeze your credit when it’s time to apply for a new credit card or take out other forms of credit.
You also have the right to place a fraud alert on your credit report. This lets creditors know that if someone applies for credit in your name, they should take steps to verify whether it is indeed you. If you place a fraud alert with one of the three credit bureaus, it will automatically update the other two bureaus with the fraud alert request.
Lastly, consider signing up for a credit monitoring service that can track not only your credit reports and credit score, but also potentially fraudulent activity and situations in which your personal information may have been compromised.
Do you need to file an identity theft report?
If you are a victim of credit card fraud, you may want to file a Federal Trade Commission identity theft report. After you file the report with the FTC, send it to the credit bureaus along with proof of your identification and a letter providing input about the fraudulent charges. This way, you can work on blocking inaccurate information from getting onto your credit report.
After you report to the credit bureaus and provide a copy of your FTC identity theft report, the credit bureaus will tell the lenders involved that you are a fraud victim. This means that lenders cannot pass the debt to collections.The credit bureaus will also investigate and make changes to your report to remove the fraud from your credit history.
The bottom line
If your credit card has been used fraudulently, you have rights. Reporting credit card fraud within 30 days limits your liability and helps you get your finances in order as quickly as possible. Start by contacting your credit card issuer, and consider changing your passwords, freezing your credit and signing up for a credit monitoring service to prevent future attempts at fraud.
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