How Does Consumer Protection Work for Credit Cards?

Consumer Protection Laws

The U.S. government started incorporating consumer protections into federal law in the 1960s. The laws have evolved as technology has changed but have always been designed to keep consumers informed and protected from unfair practices. The following consumer protection laws apply to credit cards: 

The Truth in Lending Act

The Truth in Lending Act requires lenders to disclose a credit card's credit limit, annual percentage rate (APR), finance charges, loan application fees, late fees, and prepayment penalties. These disclosures make it easier for consumers to know how to read credit card terms and conditions. 

Fair Credit Billing Act

The Fair Credit Billing Act lets consumers dispute charges they didn’t authorize, payments for goods and services they never received, and other billing errors. Consumers must, however, dispute transactions within 60 days of receiving their bill. The law also prevents lenders from taking actions that affect a consumer’s credit score until disputes are investigated and completed. 

Fair Credit Reporting Act

The Fair Credit Reporting Act ensures lenders and credit agencies share consumers' personal information responsibly and accurately. In addition to guarding against misinformation that could damage your credit score, it establishes policies financial organizations must follow to gather information. It also restricts the purposes for which the company can share your personal and credit information. 

Electronic Fund Transfer Act

The Electronic Fund Transfer Act sets requirements for lenders and consumers that limit liability when cards are lost or stolen, or errors occur. For instance, if your card goes missing, the law limits your liability to $50 if you report it within two business days. Wait 59 days, and the limit goes up to $500. Anything longer, and you're responsible for all transactions, including penalty charges. 

CARD Act

The Credit Card Accountability Responsibility and Disclosure Act prevents issuers from raising your interest rate during the first year of your account. It requires them to give you 45 days' notice of any pending interest rate or APR hikes — and allows you to cancel within that period. The CARD Act also caps the late, over-the-limit, and subprime fees lenders can impose. 

How to Read and Understand Credit Cards Terms and Conditions

Knowing how to read credit card terms and conditions starts with understanding the lingo. Here are standard terms to know: 

• Interest rate. The amount you pay to borrow money. Credit card interest is calculated and accrued as a percentage of your daily balance rather than a monthly or annual amount. To avoid paying interest, pay off the full balance by the due date each month.
• Annual fees. The sum you pay each year to use the credit card of your choice. Many cards don’t include annual fees, but others that do may provide perks that can balance out the fees.
• Late payment fees. The penalty lenders charge when you fail to make a minimum monthly payment on time. Fees generally range from $15 to $30 for your first late payment, and late payments can also cost you promotional perks and increase your APR.  
• Foreign transaction fees. Surcharges for purchases made abroad or from overseas retailers. They generally run 1-3% of the price. 
• Cash advance fees. The price of borrowing cash from your card’s line of credit. The fee is usually calculated as a flat rate or as a percentage of the cash advance. 
• Balance transfer fees. The cost paid to shift an outstanding debt to a credit card. These fees are generally a percentage of the sum being transferred. 
• Penalty APRs. Elevated interest rates lenders assess when you violate their terms of service, like when you make a late payment or exceed your credit limit. Penalty APRs are generally charged for six months or longer. 

Credit Card Fraud Protection

Credit card fraud is rising, both in frequency and dollar amount. In fact, 65% of cardholders fell prey to fraud in 2022, up 7% from the previous year. Criminals got bolder, too, with the average fraudulent charge rising 27% to $70. 

Fraud can occur when someone takes your physical card or steals the card number digitally. The law often protects you from unauthorized purchases or limits your liability. But if it goes unnoticed, fraud can leave you with hefty bills and damage your credit score. So how does consumer protection work for credit cards? 

How lenders protect against credit card fraud

Fraud is getting more advanced, but so are the ways lenders guard against it. Here are some ways you’re protected:

• Microchips. Virtually all credit cards now contain embedded microchips. These chips provide a unique code for each purchase, cutting down on fraud. The microchip also makes it harder to steal your information using a skimming device. 
• Security codes. Many lenders require you to enter a security code on your physical card to complete online purchases. So even if a thief has your credit card number, they can't complete transactions without the code.
• Two-factor authentication. Some lenders require two-step authentication via a code sent by text or email to complete purchases.
• AI. A growing number of companies use algorithms and artificial intelligence to analyze transactions to see whether they’re in line with your typical spending patterns, times, locations, and spending amounts before approving the transaction. 

What happens in cases of credit card fraud

Lenders usually alert cardholders when potential fraud is discovered. Many scams, however, originate with impostors trying to trick consumers into voluntarily disclosing card information. So if you get a fraud alert, it’s best to reach out to your credit card lender rather than respond to the message. If your lender determines fraud has occurred, they will cancel your existing card(s) and mail you the appropriate replacement. 

Most credit cards offer zero-liability policies, meaning your lender won't hold you responsible for unauthorized charges. Federal law prevents companies from holding customers liable for more than $50 in unauthorized charges.

In cases where you experience billing errors, get poor service, or acquire low-quality products, you can ask your credit card company to initiate a chargeback. A chargeback is a reversal of the charge on your card, meaning you won't have to pay the cost. However, chargebacks can be costly for merchants, so your lender may investigate the case first rather than immediately deciding in your favor. 

Keep your credit card information secure

There are common-sense steps you can take to protect yourself against credit card fraud. Some best practices include:

• Avoid financial transactions over public Wi-Fi. 
• Watch out for skimmers at places like gas pumps and ATMs. 
• If you receive suspicious or unsolicited communication, contact the company directly rather than responding to a potential phishing scam. 
• Don’t save credit card numbers online. 
• Determine whether websites are generally secure for purchases by checking for an ‘S’ at the end of the HTTP portion of the URL. You’ll also often see a small closed padlock as a security symbol to the left of the web address. If the padlock is open, the website is not properly encrypted.
• Keep your answers to potential security questions (like the name of your childhood pet or high school mascot) off social media. 

Disputing Credit Card Charges

In cases where a merchant double-charges or over-charges you, it may be necessary to dispute a charge. The dispute process applies when errors like this occur, or you’re dissatisfied with goods or services a merchant has provided, and they refuse to make it right.  

You must call your lender or initiate a dispute online to dispute a charge and ask for a chargeback. By law, you must make a good-faith effort to settle the problem with the merchant before filing a dispute. But once you file, most lenders will remove the charge until they investigate and decide. 

If the lender decides in your favor, you won't pay at all. Instead, you'll get the reversal or chargeback. Be prepared to explain why you're disputing the charge, and have receipts and other supporting documents on hand. Your lender may ask for the information immediately or wait until they've talked to the merchant. 

You’ll increase your chances of winning a dispute by: 

• Moving quickly. Federal statutes require disputes to be filed within 60 days, although some credit cards give you up to 120 days. 
• Acting officially. Send any requested evidence via certified mail.
• Not giving up. Pursue stalled disputes under federal claims and defenses statutes if the amount in question exceeds $50 and the transaction occurred in your state or within 100 miles of your home. 

Credit Union Credit Card Consumer Protections

Credit unions provide customers the same legal, fraud, and dispute protections as other lenders. That means credit union cardholders enjoy benefits like chip card capability, zero liability, and other common protections.

But there's nothing common about how credit unions serve their members; credit union credit cards are no exception. Member-focused credit unions often go above and beyond with some of the best rates and features. Visit your local credit union to learn all about the credit union credit card protections and perks available. 

Further Resources on How Consumer Protection Works for Credit Cards

Staying one step ahead of the bad guys is hard work, but your credit is worth it. Here is more information for those wondering, how does consumer protection work for credit cards? 

• Spot skimmers. Credit card skimmers at gas pumps are an old trick, but thieves still manage to use them to steal more than $1 billion per year. Here’s how to spot them.  
• Know when you’re responsible. We usually think of fraudsters as shady characters in dark rooms, but what if it’s your kindergartener unknowingly making dozens of in-app purchases? It doesn’t matter that the purchases happened in your home. You still aren't responsible for the charges if the child wasn't authorized.   
• Tackle billing issues. Check out this handy chart from the FDIC for information on your potential responsibilities and liabilities when common card disruptions arise. 

You Can Count on Credit Union Credit Cards 

When you know how to read credit card terms and conditions, you're better equipped when disputing credit card charges. So the next time you make that social media impulse buy and catch a double charge on your credit card statement in response, you will know what to do. And if you're in the market for a safe and reliable credit card partner, reach out to your local credit union to learn all about the many advantages of credit union credit cards.

Did You Know?

Credit unions offer credit cardholders creative, forward-thinking options, such as the ability to set geographic parameters or dollar amounts that trigger an automatic decline, that are helpful in real-time. In addition, credit unions are not-for-profit and member-owned, so they're more inclined to focus on services that make a difference for members rather than large banks, which must answer to shareholders.