Warybuyer Guide to Credit Card Errors and Chargebacks

When you purchase goods or services with a credit card, the law gives you additional rights when you have a dispute with the seller. In some cases, if you are unable to resolve your dispute with the seller, you can force your credit card company to give you a refund of the amount you charged on the card. The federal Truth-In-Lending Act provides 2 mechanisms for doing this, depending upon what kind of dispute you have: billing error dispute resolution procedures and vicarious liability rules. When a credit card company gives you a refund under one or the other of these mechanisms, the refund is generally called a “chargeback” because the amount of your refund is ultimately charged back to the seller’s merchant account.

Credit Card Billing Error Dispute Resolution Procedures

The billing error rules cover most disputes with credit card companies, such as failure to post payments on time and incorrect finance charge or fee assessments. It also covers some disputes with merchants, for example if a merchant overcharges you. An important category of billing error, which most people wouldn’t immediately consider a billing error, includes situations where a merchant doesn’t deliver goods or services as promised, either by failing to deliver at all, or by delivering goods that are different from what you ordered.

Here is the complete list of billing errors as defined in the federal law (12 C.F.R. 226.13):

1. A reflection on or with a periodic statement of an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent authority to use the consumer’s credit card or open-end credit plan.

2. A reflection on or with a periodic statement of an extension of credit that is not identified in accordance with the requirements of Secs. 226.7(b) and 226.8. Note: for most third party credit card transactions, this means for each charge,the following information must be provided: the amount and date of the transaction; the seller’s name; and the city, and state or foreign country where the transaction took place. For seller-issued cards, such as a department store card, this means the amount and date of the transaction, and either a brief identification of the property or services purchased or a reference to a receipt with that information.

3. A reflection on or with 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 to the consumer or the consumer’s designee as agreed.

4. A reflection on a periodic statement of the creditor’s failure to credit properly a payment or other credit issued to the consumer’s account.

5. A reflection on a periodic statement of a computational or similar error of an accounting nature that is made by the creditor.

6. A reflection on a periodic statement of an extension of credit for which the consumer requests additional clarification, including documentary evidence.

7. The creditor’s failure to mail or deliver a periodic statement to the consumer’s last known address if that address was received by the creditor, in writing, at least 20 days before the end of the billing cycle for which the statement was required.

If you have a billing error on your credit card statement, you have 60 days from the date of the statement to report it to the credit card company. You must report it in writing. Simply calling the company’s 800 number does not protect your rights. The credit card company must investigate your dispute. While it is investigating, it cannot try to collect the disputed amount from you, and it cannot report your account as delinquent to a credit reporting agency just because you have not paid some part of the disputed amount. If, after conducting a reasonable investigation, the credit card company determines that there was an error, it must correct the error. If it determines that there was no error, it can resume collection efforts and report the account as delinquent if that is the case.

If the credit card company does not follow these procedures, you can sue under the Truth-in-Lending Act for any damages you suffered plus a statutory penalty of up to $1,000.00 and reimbursement for your attorney’s fees.

Vicarious Liability Rules for Credit Card Purchases (15 U.S.C. § 1666i)

In many cases, the Truth-in-Lending Act makes your credit card company liable to you for some claims that you have against the merchant from whom you made your purchase. For example: You order furniture from a local furniture store and charge the purchase price to your credit card. The store promises that your furniture will be delivered within 6 weeks, but 3 weeks later, goes out of business and you never get your furniture. If your purchase falls within the Truth-in-Lending Act rules, you can force your credit card company to refund your money.

The Act limits the claims that you can make against the credit card company to “claims other than tort claims.” Tort claims include things like negligence, libel, slander, assault, and theft. Product liability claims for selling an unreasonably dangerous product or failing to warn of product hazards are also torts. You cannot make these kinds of claims against the credit card company.

You can make claims for breach of contract or breach of warranty. For example, if the merchant fails to deliver your purchase, delivers something that is different from what you agreed to buy, or tries to charge you more than you agreed to pay, you have a breach of contract claim. If the seller gives you a warranty or guarantee and fails to live up to it, you can hold the credit card company accountable.

If you have a valid claim that is not a tort claim, there are certain additional criteria that you have to meet before you can force your credit card company to pay your claim:

1. The amount of the transaction must be at least $50.

2. You must have contacted the merchant and asked the merchant to resolve your complaint. It is best to do this in writing and to send it by certified mail so that you can prove that you did this.

3. You must have made the purchase within 100 miles of your home or within your home state. For purposes of this rule, your home state is the state used in your billing address. If your purchase is from the credit card company itself or from a merchant affiliated with the credit card company, this rule does not apply.

4. You must give notice to your credit card company before you have paid off the charge. The credit card company’s liability is limited to the unpaid amount of the charge as of the date you notify it of your claim. For purposes of this rule, your payments are applied to other charges first and to the disputed charge only after all other charges have been paid.

If your claim meets all these criteria, you can force your credit card company to pay your claim. If the credit card company refuses, you can file suit to recover your money.

The time limit for bringing a claim under these vicarious liability rules is the same as the statute of limitations for bringing the claim against the seller, typically 2 to 4 years, depending upon the type of claim and the state in which the transaction took place. In Texas, the statute of limitations for breach of contract and breach of warranty is 4 years. The 4 year period starts on the date the contract was breached for a breach of contract action. It starts on the date of sale for a breach of warranty action.

When you submit your claim to the credit card company, refer to 15 U.S.C. § 1666i. That section has no official name. I have described it as a vicarious liability rule because that is a fairly good description of the kind of law it is, but a credit card company customer service rep may not refer to it that way. The most universal and safest way to identify this type of claim is by the statutory citation: 15 U.S.C § 1666i (Which in english means: volume 15 of the United States Code, section 1666i).

For most credit card purchases, the amount of money involved does not make it economically feasible to hire an attorney to handle this kind of suit. If your purchase was for less than $1,000.00, you will most likely have to represent yourself in small claims court. If you decide to do that, you will want to carefully read the section of the Truth-in-Lending Act, 15 U.S.C. § 1666i, that gives you this right and take it to the courthouse to show the judge. Many small claims court judges are not familiar with the Truth-in-Lending Act.

So What’s the Difference Between These 2 Kinds of Chargebacks? Which Should I Try to Get?

The key restrictions on billing error disputes are the list of defined billing errors and the 60 day time period in which to make the dispute. For a vicarious liability claim, the key restrictions are the requirement that the purchase be made in your home state or within 100 miles of your billing address and the exclusion for tort claims. However, most disputes meet the criteria for both procedures. Moreover, there haven’t been many court decisions under these provisions of the Truth-in-Lending Act, so there are differing views about exactly what is and is not covered. For example, there is no clear decision about whether mail order or internet purchases made from home fall within the geographic limits of the vicarious liability rule. I generally advise clients to pursue both procedures and let the credit card company decide what to do. Once the credit card company has made its decision, it becomes easier to plan a legal challenge.