The Common Law

Yes, consumers do receive extra protection when they buy with their credit cards. Under the Fair Credit Billing Act, a federal law, a credit card company cannot recover money from a consumer's credit card purchase if the merchant who sold the goods or services to the consumer is not legally allowed to recover money for the product.

From the practical perspective of a consumer, the FCBA means that there are several advantages to using your credit card instead of cash. Most importantly, the law allows a consumer to dispute a charge with the credit card company. For example, credit card users can dispute charges for defective products. So let's say that you use cash to buy a radio, and it never works from the minute you take it out of the box. Assuming the store refuses to exchange it, one of your only options would be to sue the store in small-claims court. Alternatively, if you paid for the radio with your credit card, you could contact your credit card company to dispute the charge. (Read next week's column to see how someone should contact his or her credit card company to dispute a charge and what information should be included.) Additionally, using your credit card provides consumers protection when they prepay for goods or services that are never delivered.

It is important to remember that this law does not cover all credit card purchases. First, in order to dispute a charge on a credit card, a consumer must not yet have paid the charge. The consumer must also make a good faith effort to settle the dispute with the merchant, the value of the goods must be more than $50, and the item must be bought within 100 miles of your home address. Ultimately, if you think the FCBA might cover some of your holiday purchases, it's probably in your best interest to use your credit card instead of cash.