What Is the Maximum Liability for Unauthorized Charges?

The Fair Credit Billing Act (FCBA) is a federal law established to safeguard consumers from unfair credit billing practices. This legislation addresses various billing errors, including unauthorized charges on credit card and other open-end credit accounts. The FCBA provides a framework for consumers to dispute such errors and outlines creditor responsibilities.

Understanding Unauthorized Charges and FCBA Scope

An unauthorized charge, as defined under the FCBA, refers to a transaction made by someone without actual, implied, or apparent authority to use the account, and from which the cardholder receives no benefit. This is distinct from situations where a cardholder permits someone to use their card, even if they later regret the purchase. Such authorized charges do not fall under the FCBA’s definition.

The FCBA primarily covers open-end credit accounts, including credit cards, charge cards, and home equity lines of credit. It does not apply to closed-end credit, such as auto loans or mortgages, nor does it cover debit card transactions. Debit card transactions are generally protected by different regulations, like the Electronic Fund Transfer Act.

Your Maximum Liability for Unauthorized Charges

Under the Fair Credit Billing Act, a cardholder’s maximum liability for unauthorized charges on a credit card is limited to $50. Many credit card issuers, however, offer “zero-liability” policies, which often reduce this financial responsibility to $0.

Timely reporting is important for the $50 liability or zero liability protection to apply. If the credit card is reported lost or stolen before any unauthorized charges are made, the cardholder typically bears no liability. If unauthorized charges are reported promptly after discovery, often within 60 days of the statement showing the charge, the cardholder’s liability is frequently $0.

How to Dispute Unauthorized Charges

To dispute an unauthorized charge under the FCBA, a consumer must provide written notification to the creditor. While an initial phone call can be helpful, it does not activate the full FCBA protections. The written dispute letter should be sent to the specific “billing error” address provided by the creditor, often found on the billing statement.

The dispute letter must include specific information to be valid. This involves the cardholder’s name, account number, specific charge details (date, amount, merchant name), and a clear explanation that the charge is unauthorized. Send this letter so it reaches the creditor within 60 days of the first statement containing the error. Keeping copies of all correspondence, including proof of mailing, is advisable.

The Dispute Investigation Process

Once a valid written dispute is received, the creditor has specific obligations under the FCBA. The creditor must acknowledge the dispute in writing within 30 days. They must then investigate and resolve the dispute within two complete billing cycles, but no more than 90 days, from receiving the letter.

During this investigation, the consumer is not required to pay the disputed amount or any associated finance charges. However, the consumer must continue to pay all other undisputed charges on the account. The creditor generally cannot report the disputed amount as delinquent to credit bureaus. If the investigation confirms an error, the creditor must correct it and refund any associated fees or interest. If the charge is found valid, the creditor must provide a written explanation, and the consumer will owe the disputed amount.