Withholding a card payment: It's your right, but take care

In a dispute over billing, quality of product, it's your nuclear option

By Dana Dratch

4 steps if you want to withhold disputed card payments
4 steps if you want to withhold disputed card payments

When it comes to disputes over items purchased with a credit card, consumers have a nuclear option: withholding payment. You can do it, but it's a last resort, it's tricky to do right and you better be sure, because there can be consequences. 

Whether you're disputing a billing error or contesting a charge based on quality, you can't just skip the paying and go on with your life. The federal Fair Credit Billing Act gives consumers the right to withhold payments under limited circumstances, but it also levies responsibilities, says Christina Tetreault, staff attorney for Consumers Union. "You want to make sure you're dotting your i's and crossing your t's," she says.

These are the four things you'll need to know if you're thinking of withholding a disputed charge:

No. 1: For billing errors, contact card issuer first
Think you have a billing error? Then you want to contact your card issuer first. According to Carole Reynolds, an attorney with the Federal Trade Commission, billing errors include:

  • Charges tagged with the wrong date.
  • Charges of the wrong amount.
  • Unauthorized items or services.
  • Items or services that weren't delivered as agreed.
  • Charges you've flagged for either an explanation or proof the purchase took place.
  • Bills that weren't sent to the current address (provided the issuer had that address in writing at least 20 days before the end of the billing period for that statement).
  • Bills that don't include payments or credits.

Many card issuers make reaching out seamless either through toll-free numbers or their websites. Issuers "tend to be sympathetic to you, the customer," says Stephen Brobeck, executive director of the Consumer Federation of America. 

Your card could also offer additional options. One example: American Express' "return protection" may refund the cost of eligible items bought with the card when a merchant refuses to take them back, if you contact the card company within 90 days of the purchase, says Jane Di Leo, a company spokeswoman.

What to do: No matter how you first contact your card issuer, to preserve your rights, you need to follow up with a quick letter, says Mavis Fowler-Williams, lecturer in law at Columbia University School of Law, and author of "Credit Cards and the Law." Send it certified or priority with tracking, so that you can verify when the issuer received it, she says.

Include your card account number, the closing date of the bill, a description of the disputed item, and outline the problem, Tetreault says. Include a copy of the item's receipt if you can, but keep the original for your records, she says.

Ask them to correct the bill. If you're withholding payment for the disputed item, state that, too, says Reynolds.

Send the letter to the card address reserved for billing inquires, not where you mail your bill. You have to get the letter to the card issuer within 60 days of the bill's mailing date in order to dispute a billing error. So when that credit card statement arrives, "Keep the envelope," says Fowler-Williams. "That has the postmark date, and that's a critical date."

With a billing error, you're not required by law to try and work it out with the merchant first. But if you have a personal relationship with the business and think they can take care of it quickly, sometimes that can be a practical move, says Fowler-Williams.

But remember that with billing errors, the 60-day clock is ticking. So if the merchant doesn't move quickly and provide proof the charge has been removed, contact your card issuer quickly in writing or you could lose the right to dispute that charge.

No.  2: For quality disputes, contact the merchant first
Goods aren't the quality you expected? Or the item breaks in short order?

In this case, you have to contact the merchant first if you want to preserve your dispute rights under the Fair Credit Billing Act. Known as "asserting claims and defenses," it's a little different from disputing a billing error, and the ground rules are different, says Tetreault.

If you want to assert claims and defenses, the charge you're contesting has to be more than $50. The merchant has to be either in the same state or within 100 miles of your billing address. You must first try to resolve the issue with the merchant. And while you don't have to worry about time deadlines as you do with a billing error, you can't have paid that disputed item on your card bill. 

If the merchant refuses to reverse the charge or drags out the process, federal law gives you the right to ask your card issuer to remove the disputed item from your bill, says Tetreault.

What to do: Contact the merchant in a way you can document, says Fowler-Williams. That means if you call or email first, follow up with a quick note via snail mail.

Spend a few dollars to send that letter certified or priority with tracking so you can prove the merchant received it, she says.

You want to make sure you're dotting your i's and crossing your t's.

-- Christina Tetreault
Consumers Union

If it's appropriate, include a photo that shows why the item is a problem. "That can help support your position," Fowler-Williams says.

No answer or helpful action from the merchant? Or your card bill arrives with the disputed charge on it? Now it's time to exercise your rights and contact the card issuer.

Again, follow up any communication with a letter, says Fowler-Williams.

Include all of your account information, a succinct explanation of the problem and request to correct the bill.

No. 3: Decide whether to withhold payment
If you're disputing a billing error, federal law gives you the choice to pay for the item (and hopefully later receive a credit on your card statement) or withhold payment on the disputed item. But if your dispute is based on a quality issue and you're asserting claims and defenses, then the Fair Credit Billing Act allows you to withhold payment for the disputed item.

Be aware that while your dispute is being investigated, the card issuer can still count the charge against your credit limit, she says.

So if you're challenging a $300 item, and you have a $2,000 credit limit, you'll have just $1,700 of your credit line available until the dispute is resolved.

If you're in the running for a mortgage, that disputed item on your credit report could throw a monkey wrench into your plans.

"Unfortunately, Fannie Mae and Freddie Mac will sometimes refer a mortgage application to manual underwriting if there is a dispute," says Chi Chi Wu, staff attorney for the National Consumer Law Center.  And "manual underwriting is the kiss of death for some lenders." 

Your right to withhold payment applies only in consumer transactions. If the dispute involves your business purchases, these consumer laws are of no help.

What to do: Withhold the amount in dispute, but pay the remainder of your bill. You still owe the rest and must pay it on time to avoid late fees and eventual credit score damage.

No. 4: Get the issuer's decision, decide if you want to appeal
When you dispute a billing error, the card issuer has up to 30 days to acknowledge your letter and get back to you in writing, unless they've resolved the matter before then. The issuer has to complete its investigation and report its findings to you within two billing cycles -- no more than 90 days.

With a dispute over quality, there's no specific timetable for the consumer or the card issuer under the Fair Credit Billing Act.

No matter what the reason for the dispute, the contested charge is set aside during the card issuer's investigation. You are not obliged to pay it, or any interest charges on it. "For the most part, the charge comes off the statement, and your balance, immediately," says Visa spokesman Andrew Gerlt. "Most are resolved in a few business days, up to a few weeks."

If the card issuer investigates and finds against you, you'll owe the charge, plus interest, says Tetreault. Your options after that are to hire a lawyer and file a lawsui, or go through arbitration if your card agreement imposes that requirement on you. You can also file a complaint with the federal Consumer Financial Protection Bureau.

What to do: With a billing error dispute, you have to appeal within 10 days of getting the issuer's decision, she says. With an appeal based on a quality issue, you don't have a specific deadline under the Fair Credit Billing Act, says Reynolds.

You may have other options, too. Depending on the reasons behind your billing error dispute, you may be able to "assert claims and defenses" if there was also a quality issue, says Tetreault. "I also encourage folks to check state law," she says. "You could have additional protection."

See related: Your rights under the Fair Credit Billing Act, If disputing a charge with PayPal, approach merchant first, How to dispute a debit card purchase

Published: October 30, 2015

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Updated: 10-22-2016

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