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What to Do About Credit Balances or Errors

We don’t often think about credit accounts with credit balances (more often, we are thinking about a deficit of payments). We may on occasion receive complaints, though, about alleged errors on credit accounts. Both situations require specific compliance actions.

Enacted in 1975, the Fair Credit Billing Act (FCBA) is a federal law that aims to protect consumers from prejudicial or unfair billing practices.

Billing Errors

The Fair Credit Billing Act targets billing errors in open-end credit accounts, such as home equity lines of credit, charge card accounts, and credit cards. Although closed-end credit accounts are technically not covered by the billing error provisions, creditors who receive notices of alleged errors on closed end credit accounts should address the allegations as expeditiously as possible, and, as a prudent compliance practice, maintain a complete record of the consumer’s notice, the creditor’s actions, and the documentation to evidence a good faith effort.

The types of billing errors vary, but, this list represents common billing errors that are covered:

  • Transactions made in the wrong amount
  • Transactions that appear on the statement, but were not actually processed by the consumer. Could be categorized as ‘unauthorized’ transactions.
  • Charges for goods that were not delivered as specified at the time of purchase
  • Charges for goods that are not received by the consumer
  • Calculation errors
  • Statements mailed to the incorrect address (creditor must receive the consumer’s change of address, in formal writing, at least 20 days prior to the end of the billing period).
  • Failure to properly reflect transactions or payments to accounts

The Fair Credit Billing Act enables consumers to file disputes concerning billing errors by sending written notices of disputes to their creditors. To trigger the provisions of the Fair Credit Billing Act, a consumer must mail a written dispute via regular mail (thru the US Postal Service) to the “billing inquiries” address that appears on their account statement. That information is required to be provided in the initial account disclosures in the Fair Credit Billing Act Billing Error Resolution Notice (Appendix G to Part 1026 – Open-End Model Forms and Clauses – G3 or G4 for HELOCs)

The FCBA requirements for resolving billing errors are generally found in Regulation Z – Truth in Lending Act (§1026.13). The requirements for the creditor include providing an acknowledgment within 30 days of receiving the notice from the consumer. The creditor must also complete an investigation, resolve the alleged error, and notify the consumer within two billing cycles (but no later than 90 days) after receiving a billing error notice. Details of the creditor’s requirements can be found in §1026.13.


Credit Balances and What to Do About Them

When it comes to credit balances, the compliance direction is found in two separate sections, but both are covered by Regulation Z – Truth in Lending Act.

Open-end Account Credit Balances – §1026.11 and

Closed-end Account Credit Balances§1026.21

When a credit balance in excess of $1 is created on a credit account (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of the consumer), the creditor must:

(1) Credit the amount of the credit balance to the consumer’s account;

(2) Refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer; or

(3) Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer’s current location is not known to the creditor and cannot be traced through the consumer’s last known address or telephone number.

The section for open-end credit accounts also covers account termination, settlement of estate debts, and handling joint accounts.

Though you may not often need to address billing errors or credit balances, compliance with them is required. Be sure your CMS addresses the requirements, and that your compliance review/monitoring procedures include periodic reviews, as applicable.


Around the Industry:

Effective Now:

Act now to update your CMS.

On the Horizon:

What will deregulation mean for your financial institution?


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