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Truth in Lending: 7.9.2.4 Coverage of Third-Party Payment Intermediaries

The official interpretations provide that the billing error procedures apply generally to disputes about goods and services that are purchased using a third-party payment intermediary, such as a person-to-person internet payment service, if they are funded through use of a consumer’s open-end credit plan.979 An example of an internet payment service is PayPal.

Truth in Lending: 7.9.4.1 Definition of Billing Error

FCBA defines six types of errors as billing errors, and then adds a final category, “[a]ny other error described in regulations of the Bureau [the CFPB, formerly the FRB].”997 Regulation Z998 expands somewhat on the list in the statute.

Taking the statute and Regulation Z together, the following are defined as billing errors:

Truth in Lending: 7.9.5.1 General

The consumer must invoke the billing error procedures by sending a notice of billing error to the creditor in a timely and proper fashion.

Truth in Lending: 7.9.5.2 Timing of Notice

The consumer’s billing error notice must be received by the creditor no later than sixty days after the creditor first transmitted the first periodic statement that reflects the billing error.1035 The sixty-day period begins to run when the creditor first sends a statement to the consumer who alleges the billing error, regardless of any statements sent earlier to other obligors.1036 The statement must be an actual periodic statement; another document such as a letter does not constitute a “s

Truth in Lending: 7.9.5.3 Form of Notice

The billing error notice must be in writing.1052 Unlike the procedure for asserting claims and defenses or unauthorized use, an oral notice is not sufficient to trigger the billing error procedures.1053 If the creditor includes in its periodic statement a telephone number for billing errors, it must also clearly disclose that the consumer will not preserve billing error rights by using the telephone number.1054 However, if a creditor states i

Truth in Lending: 7.9.5.4 Content of Notice

The consumer’s billing error notice must include sufficient information to enable the creditor to identify the cardholder’s name and account number.1061 If only a correct account number is specified, or a unique name, or a name and social security number, or a name and a unique address is provided by the consumer, that information should be sufficient to enable the creditor to identify the consumer’s name and account number.1062

Truth in Lending: 7.9.5.5 Repeat Notices for the Same Error

If a consumer reasserts a billing error that the creditor has already responded to, investigated, and resolved, the creditor need not respond again.1074 This exemption only applies, however, if the consumer’s second notice claims “substantially the same” billing errors as the first.1075

Truth in Lending: 7.9.5.6 When Is a Second Billing Error Notice Permitted?

Complicated questions arise if an error appears in one periodic statement, but then is only partially rectified. For example, the creditor may delete an erroneous charge, but fail to delete the interest and other charges assessed upon it. Does the consumer’s first notice of billing error cover both the original error and the faulty correction of it? If the consumer did not send a written billing error notice when the error first appeared, can the consumer do so in response to the creditor’s faulty correction?

Truth in Lending: 7.9.6.1 General

Once the creditor receives the billing error notice, in writing, at the specified address, the creditor must execute certain procedures within a certain time frame.

Truth in Lending: 7.9.6.2 Acknowledgment of Receipt

First, the creditor or card issuer must acknowledge receipt of the billing error notice within thirty days of receiving it.1084 The creditor fulfills this requirement upon the mailing or transmission of an acknowledgment; the fact that the consumer never receives the acknowledgement does not violate the Act.1085 The creditor need not respond to a billing error notice if it has already investigated and resolved the error during the thirty-day time period.

Truth in Lending: 7.9.6.3 Right to Withhold Payment

The notice of the consumer’s billing rights must include a clear and conspicuous explanation of the right to withhold disputed amounts.1088 After the consumer gives notice of the billing error, the consumer may withhold payment of the amount in dispute and charges related thereto.1089 Alternatively, the consumer can pay the amount without waiving billing error rights;1090 paying the disputed amount does waive a separate TILA right, to assert

Truth in Lending: 7.9.6.4 Creditor’s Collection Efforts over the Disputed Amount

The creditor cannot attempt to collect the amount in dispute or related charges prior to resolution of the alleged error.1094 This protection applies even if the ultimate resolution of the dispute is that the consumer does actually owe the disputed amount.1095 In addition to constituting a FCBA violation, an attempt to collect the disputed amount may violate state debt collection or UDAP laws.1096

Truth in Lending: 7.9.6.5.1 FCBA requirements

When a consumer enters into a billing error dispute, the Act’s restrictions on adverse credit reports come into play.1107 Once the consumer has properly notified the card issuer of a billing error, neither the creditor nor its agent may report the disputed amount as delinquent to any person, including a credit reporting agency or a collection agency. Nor may the creditor directly or indirectly threaten to make such a report.1108

Truth in Lending: 7.9.6.5.2 Fair Credit Reporting Act requirements

In addition to FCBA’s credit reporting restrictions, consumers may also have claims under the Fair Credit Reporting Act (FCRA).1118 Under the FCRA, a credit reporting agency must conduct an investigation if a consumer disputes information in the consumer’s credit report.1119 In addition, the creditor must participate in this investigation, and may be liable if it fails to do so.1120 The FCRA also requires creditors to report disputed debts as

Truth in Lending: 9.3.4.2.1 Scope of McCarran-Ferguson Act

The McCarran-Ferguson Act325 was enacted in 1945 by Congress in response to a Supreme Court case which held for the first time that an insurance company doing business across state lines engaged in interstate commerce and that the Sherman Act applied to the business of insurance.326 Prior to that time, the authority to regulate the business of insurance resided solely with the states.

Truth in Lending: 9.3.4.2.2.1 Overview

While section 1639c(d) arguably invalidates, supersedes, or impairs a state law that permits the financing of the relevant credit insurance premiums or fees,330 the McCarran-Ferguson Act only applies if the federal law does not relate specifically to insurance and if the proffered state law regulates the business of insurance.

Truth in Lending: 9.3.5.1 Overview

The Dodd-Frank Act prohibits prepayment penalties for residential mortgage loans356 that are not “qualified mortgages”357 or that have adjustable rates or APRs above a threshold.358 When prepayment penalties are permitted, they are limited in dollar amount and time.359 In order to extend credit with a prepayment penalty, creditors must offer a similar loan to the consumer.

Truth in Lending: 9.3.5.2 Prohibition of Prepayment Penalties for Certain Loans

The Dodd-Frank Act imposes a complete prohibition of prepayment penalties for certain residential mortgage loans.366 This prohibition applies to all residential mortgage loans that do not meet the definition of “qualified mortgage,” have adjustable rates, or are higher-priced mortgage loans.367 Step-rate mortgages, however, may have prepayment penalties if their APR cannot increase after consummation.368

Truth in Lending: 9.3.5.4 Requirement That Consumer Be Offered a Loan Without a Prepayment Penalty

Even when prepayment penalties are permitted, creditors must offer homeowners the option of a mortgage loan without a prepayment penalty.376 This requirement applies even when the offer of credit is extended indirectly, through a mortgage broker.377 When it is extended through a mortgage broker, creditors must both present the mortgage broker with an alternative loan without a prepayment penalty to offer to the consumer and must require the mortgage broker, by agreement, to offer either that

Truth in Lending: 9.3.6 Disclosure and Counseling for Negatively Amortizing Loans

The Dodd-Frank Act establishes disclosure and counseling requirements for loans that involve negative amortization.386 The CFPB has issued implementing regulations, effective for applications received on or after January 10, 2014, for the counseling provisions.387 The CFPB has exempted creditors from complying with the negative amortization disclosures until it adopts regulations implementing the integrated TILA-RESPA disclosures required by the Dodd-Frank Act, and those rules become mandato

Truth in Lending: 9.3.7 Periodic Statements

Periodic statements are required as of January 10, 2014, for all closed-end residential mortgage loans secured by a dwelling.399 Reverse mortgages and timeshares are exempted from this requirement, as are servicers who service fewer than 5,000 loans, all of which they own.400 Periodic statements are also unnecessary where the obligor receives a coupon book that provides the same information, including that related to delinquent accounts.401 F