There’s No Disputing It – Dispute Investigation, That Is

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If a consumer is not happy about a financial transaction, there is generally a means to seek a resolution to the situation and that creates compliance deliverables for financial institutions. So it is with disputes about transactions on open-end credit accounts. Other types of financial disputes may arise, and, we’ll talk about where those fall, too.

To meet compliance requirements, the financial institution needs to take steps to:

  • Identify exact nature of the dispute;
  • Determine if investigation is necessary; and
  • Ensure all of the investigation procedures, timing, and notice requirements are met and documented.

The type or purpose of the transaction will help you determine if investigation is required under  consumer compliance rules, and, if it is, what steps you must take to ensure the consumer’s rights and protect your financial institution. For consumer lending purposes, there is one area that requires formal dispute investigation – those under Federal Regulation Z – Truth in Lending Act (TILA).

Regulation Z Billing Error Resolution

Regulation Z dedicates §1026.13 to ‘Billing error resolution.’ The rules about investigating and resolving billing errors applies to open-end credit accounts (home equity lines of credit, credit cards, certain types of overdraft lines of credit, and the like).

Regulation Z defines a billing error as a reflection on or with a periodic statement for an extension of credit that exhibits some type of error. The error could be one of many types, including the amount or frequency of the transaction, that the transaction was not authorized by the consumer, or that a payment was not properly credited. Notice from the consumer to the creditor must be in writing and received by the creditor at an address designated in the account disclosures no later than 60 days after the creditor sent the first periodic statement that reflects the alleged billing error.

Once the creditor receives the duly executed notice from the consumer, the creditor must:

  • Mail or deliver written acknowledgment to the consumer within 30 days of receiving a billing error notice, unless the issue has already been resolved within the 30-day period; and
  • Comply with the resolution procedures of Regulation Z within two complete billing cycles (but in no event later than 90 days) after receiving a billing error notice.

While the allegation is pending resolution:

  • The consumer need not pay the disputed amount, but the creditor may seek to collect the undisputed portion of the debt;
  • The creditor must not make or threaten to make an adverse report about the consumer’s credit or report any delinquency, based on the disputed amount;
  • The creditor may not accelerate the debt or close the account, based on the disputed amount;

Following the investigation, the creditor has certain rights and duties:

  • If no billing error occurred, or, if a different error occurred than alleged, the creditor must provide a written notice to the consumer that is compliant with Regulation Z.
  • If a billing error occurred as asserted, the creditor must:

(1) Correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable; and

(2) Mail or deliver a correction notice to the consumer.

  • The creditor must follow all other requirements of Regulation Z with respect to finance charges, credit reporting, and notices to the consumer.

Records of such disputes, information used to investigate them, and all notices to and from the consumer must be maintained to evidence compliance.

Other Consumer Disputes

Billing error resolution rules under Regulation Z are specific to open-end credit accounts. What about other errors or alleged errors about which consumers lodge a dispute? What responsibilities do financial institutions have to investigate and resolve those disputes?

Financial institutions are responsible to maintain, as part of the Compliance Management System (CMS), a consumer complaint process. For instance, the Consumer Financial Protection Bureau’s Supervision and Examination Manual states:

“An effective compliance management system should ensure that a supervised entity is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s compliance management system.”

So, virtually any complaint that a consumer communicates in writing must be documented as part of the CMS, investigated, and resolved. The documentation about the disputes or complaints must include information to evidence expeditious handling, vigorous investigation, and timely notice to the consumer. Regulators have an expectation that disputes or complaints will be resolved equitably and that the results will be used by the financial institution to improve processes wherever possible.

Around the Industry:

Effective Now:

  • More debt collection compliance activities from CFPB.

On the Horizon:

  • CFPB and loan pricing policy – will this interest spread to mortgage loans?
  • CFPB seeks public input on HMDA resubmission.


  • Love automated mortgage loan payments? Controlling the compliance risk? See this.