Can I Withhold a Credit Card Payment if I Have a Dispute With a Seller?

If you have a dispute with the seller about an item or service you purchased with a credit card, you might be able to withhold payment on the card up to the amount outstanding for that purchase. This rule has a few exceptions and conditions you must meet before you withhold payment.

Disputes That Qualify for Payment Withholding

You can often withhold payment—subject to the limits and conditions below—if you believe you shouldn't have to pay a certain credit card charge because the seller refuses to replace or repair an item, or otherwise refuses to correct a problem. (15 U.S.C. § 1661i and 12 C.F.R. § 1026.12(c).)

Some examples of when this might happen include:

• the item you bought was defective
• the business sent the wrong item, or
• you didn't authorize the person who made the purchase to use your card. (If the problem is unauthorized use of your credit card—for example, charges made by someone who stole your card—promptly report your loss to the credit card issuer to limit your liability for unauthorized charges.)

Conditions for Withholding Payment

You must meet some conditions to use this credit card dispute process.

Your Obligations Before You Withhold Payment

Before withholding payment, you must make a good-faith effort to resolve the dispute with the seller. If the merchant won't resolve the problem, you can file a dispute with the credit card company using a procedure called "Claims and Defenses." However, if you're disputing a billing error, you'll use a different procedure (see below).

In writing, you must also explain to the credit card company why you're withholding payment.

Distance and Charge Amount Conditions for Non-Seller-Issued Credit Cards

There are limits to using this process for certain types of credit cards. If you used a Visa, MasterCard, or another card not issued by the seller, you can refuse to pay only if:

• the purchase cost more than $50, and
• you made the purchase in the state where you live or, if you live in a different state, within 100 miles of your home. (Your state's law determines whether a purchase you made via home telephone or the Internet is considered a purchase made in your state or in the state where the merchant is located.)

These distance and amount conditions don't apply if:

• the seller issued the credit card (such as a department store card issued by the store)
• the seller controls the card issuer or vice versa, or
• the seller obtained your order by mailing you an advertisement in which the card issuer participated, urging you to use the card to make the purchase.

When and How Much You Can Withhold

You get one year to use this dispute process to raise a claim or defense to payment. But, you can withhold only the balance on the disputed item or service that is still unpaid when you first notify the seller or card issuer of the problem. If you already paid part of the bill, the amount you paid is applied first to late charges, then finance charges, then your purchases, starting with the oldest. So, if you owe a lot of fees and charges, you might not have paid off much—if any—of the disputed amount.

How to Withhold Payment

If you conclude that you are entitled to withhold payment, here's what to do.

Write a letter. Write a letter to the credit card company explaining why you aren't going to pay. Describe the steps you took to resolve the problem with the merchant. (Alternatively, you might be able to dispute the charge online.)

Mail to the correct address. Before you mail a letter, look at the back of your bill or online for the correct address to use. It will probably be listed under a heading like "Your Rights If You Are Dissatisfied with Your Credit Card Purchases." Or call the credit card company to find out where to send it. Credit card companies have special addresses they use for this type of correspondence. The company can disregard your letter if you don't send it to the correct address.

Keep a copy. And don't forget to keep a copy of the communication for your records.

The credit card company may not report the amount in dispute as delinquent until the dispute is settled or the matter is decided by a lawsuit.

Using the Billing Error Process to Withhold Payment

Again, there is another process for withholding payment on a credit card if you have a dispute with a merchant—the billing error dispute process. You can use this process if, for example, you were charged for property or services that were never delivered to you or someone who wasn't authorized made a charge to your card. But to use this process, you must act within 60 days. To learn more, see How to Dispute a Billing Error on Your Credit or Debit Card Statement.

This article is a modified excerpt from Solve Your Money Troubles, by Amy Loftsgordon and Cara O'Neill (Nolo).