Disputed Territory: Billing Error Notices
No one likes to throw money away. It’s understandable then that credit union members can become frustrated or angry when they notice an error on their periodic statement, or when they pay for goods or services that are never provided. Luckily for these members, section 1026.13 of Regulation Z provides a mechanism through which they may recover their funds for credit card and open-end credit accounts – the billing error notice. While Regulation E also includes error resolution provisions, Regulation Z is unique in that it allows members to recover money spent on goods or services that were not delivered to the member. For further discussion on the differences between the error resolution provisions of Regulation E and the billing error resolution provisions of Regulation Z, see this previous post in the Compliance Blog.
But what action can the credit union take when a member provides a billing error notice and refuses to pay the disputed amount? Can the credit union collect on the amount in dispute? Can the credit union report the account as delinquent? The answers to these questions lie in section 1026.13(d) and the accompanying staff commentary.
Section 1026.13(d) describes the rules that apply while the billing error is pending. Section 1026.13(d)(1) provides that the member does not have to pay, and the credit union cannot attempt to collect, the disputed amount or charges relating to it, such as finance charges. Additionally, the credit union is prohibited from charging the disputed amount in an automatic payment if the billing error notice is received at least 3 days before the scheduled payment.
Section 1026.13(d)(2) also prohibits a credit union from furnishing negative credit reporting data due to the member’s failure to pay the disputed amount.
So does this mean that a member can refuse to pay their entire credit card bill, and he or she will avoid any negative credit reporting? No. Section 1026.13(d)(4) states that:
“[a] creditor is not prohibited from taking action to collect any undisputed portion of the item or bill; from deducting any disputed amount and related finance or other charges from the consumer's credit limit on the account; or from reflecting a disputed amount and related finance or other charges on a periodic statement, provided that the creditor indicates on or with the periodic statement that payment of any disputed amount and related finance or other charges is not required pending the creditor's compliance with this section.”
The term “undisputed amount” is important here. While a member may refuse to pay the disputed portion of the bill (and charges relating to it) under section 1026.13(d)(1), the member must still pay any portions of the bill that are not in dispute. For example, if the member is disputing $100 for goods or services not received (and related charges), but has a credit card payment due in the amount of $300, the member must still pay the $200 portion that is not in dispute.
While section 1026.13(d)(2), prohibits the furnishing of negative credit reporting data, it’s application is also limited to the “disputed amount.” Comment 1 of the staff commentary to section 1026.13(d)(2) states that:
"Although the [credit union] must not issue an adverse credit report because the [member] fails to pay the disputed amount or any related charges, the [credit union] may report that the amount or the account is in dispute. Also, the [credit union] may report the account as delinquent if undisputed amounts remain unpaid.”
While a credit union is prohibited from issuing an adverse credit report for a member’s failure to pay a disputed amount, the credit union is allowed to report that the account is “in dispute.” Additionally, the credit union is still permitted to report delinquencies involving a failure to pay amounts that are not in dispute.
Finally, Comment 3 in the Staff Commentary to section 1026.13(a)(3) notes that a member is not required to attempt to resolve the dispute with the merchant before providing a billing error notice to the credit union, so it is possible that a member could be attempting to resolve the dispute with the merchant and with the credit union at the same time. If the credit union determines that a billing error occurred, section 1026.13(e) requires the credit union to correct the billing error and to credit the member’s account with any disputed amount. This previous post in the Compliance Blog discusses situations in which the credit union may attempt to claw back credits provided to a member’s account due to a billing error if the merchant has also provided a refund or other funds.
About the Author
Nick St. John, was named regulatory compliance counsel in March 2020. In this role, Nick helps credit unions with a variety of compliance issues.