Credit Card Chargeback

As a customer, one might face an instance wherein they have already made the payment for an item that was ordered but when it arrives, it might be damaged or it might not even arrive in the first place. The customer therefore would want the amount paid for the purchase of the item back. For this, they might raise a dispute with the banks or issuer of the credit card, asking for a credit card chargeback.

This is not to be confused with a refund, although the consequence to both may be the same. The customer ends up receiving credit for the order or for any fraudulent charge on their credit card account. As can be deduced, the credit card chargeback is one of the most important tools for raising a dispute and taking action against fraudulent charges on the card account.

What is a Credit Card Chargeback?

A credit card chargeback basically constitutes an action on the part of the bank or issuer of the credit card which can reverse any electronic payment made by the credit card holder. Therefore, the payment made by the credit card user is reversed and a process of dispute resolution begins with a chargeback. Typically, the primary parties in the chargeback process are the customer who has issued the credit card  or any bank or financial institution and a merchant. 

The primary motive of a credit card chargeback is to reverse a payment that has been made if there has been a billing error, the credit card has been used by an unauthorized individual or the good or service that has been paid for has not arrived oris found to be damaged. The customers carrying credit cards usually denote the credit card chargeback process to a dispute raised due to a fraudulent charge, the reversal of credit charged to the customer and the credit being taken away from the merchant. 

Credit Card Chargeback

The credit card chargeback can take place if the customer raises a dispute and request the bank to reverse the transaction or if the bank itself notices an issue with the transaction. This means that the customer has been unsuccessful in their attempts to get the amount that has been paid back from the merchant.

The refund is therefore forced by reporting the problem to the credit card issuer. These chargebacks can have an adverse effect on the merchants and any business having too many credit card chargebacks to their name will be forced to shut down their account or experience a significant increase in per transaction costs.

How Does A Credit Card Chargeback Work?

A credit card chargeback typically works as a protective tool in favor of the customers. This is because a chargeback helps them in obtaining the amount spent in any fraudulent purchases and charges back. The customer here submits this dispute to the credit card issuer. For example, when a customer notices some unusual activity or unfamiliar transaction on their credit card account or has issues with an order they placed recently, they can dispute that particular order or transaction. The customer will be provided with two options, namely chargeback and refund, while disputing the transaction. The chargeback would be made by the credit card issuer while the refund is made by the merchant. Therefore, when this issue first occurs, the customer should directly approach or contact the merchant and raise the solution of a refund of their money.

 To get a refund, the customer would need to provide proof that the item is damaged along with a copy of the billing receipt for the item. This can also be done online by getting in touch with the customer support or helpline of the merchant dealership.  For example, if the customer ordered an item from an online shopping website and on its delivery, the product was either damaged or not the one that was ordered, the customer can call up the customer support for that website and request a refund. If this request is denied, the customer can ask for a credit card chargeback from the issuing authority. Therefore if a refund request is not accepted, the customer takes the next step for credit card chargeback. This is done for a reversal of the transaction that has already taken place by the financial institution which has issued the credit card.

When to Use Credit Card Chargeback?

The credit card holders are provided with consumer protection during the usage of these cards, mostly by the regulatory bodies deeming essential measures along with some additional benefits provided by the credit card issuer. Therefore, the consumer can raise a dispute against incorrect bills, unauthorised charges and defective or different goods and services that had been ordered. Following are the reasons which might call for a chargeback by the customer.

  • Goods and services were different from the ones ordered: The goods or services ordered by the customer were different in material or function than what had been described by the merchant. 
  • Unfamiliar or unauthorized transaction in the account: The customer notices a transaction that has not been initiated or authorized by them for the purchase of any good or service.
  • Goods or services were not delivered to the customer: If the customer ordered any good or service but it was never delivered or provided to  them, it would make the customer eligible to raise a dispute for credit card chargeback.
  • Subscription bill was charged even after cancellation: The customer cancelled a subscription but the bill continued to be billed after the cancellation and the recurring bill was charged.
  •  Refund or reversed credit not received: The customer cancelled or returned an item or service according to the policies mentioned by the merchant, but the credit was not returned or reversed to them.
  • Amount charged was not accurate: The amount charged from the account of the customer was not the same as the bills of the good or service that they ordered.

What is the Time Limit for a Credit Card Chargeback?

In general, the credit card chargeback should be filed by the customer between 60 and 120 days counted from the date that the original purchase was made. Once filed, the merchant should provide a response within 45 days of the same if they wish to dispute the claim. However, these timings are set by the credit card issuing company and may be different in different institutions. After the response has been filed by the merchant, their bank investigates the dispute and it might take a longer time if a compromise has to be reached. 

The process of a credit card chargeback starts with the customer raising a dispute or filing a complaint with the bank or institution which has issued their credit card. After this has been done, the bank tries to verify if the claim is right or not. In this, if the bank decides that the customer is the one at fault, the process is closed at this initial stage. However, if the dispute is found to be valid, the consumer is given a refund of their money and the credit card issuing bank begins the process of credit card chargeback, contacting the merchant’s bank. The dispute is then verified by the merchant’s bank too and they too look into the matter and decide on the validity of the matter. The merchant is then informed of the chargeback process initiated. 

Credit Chargeback

 If the credit card chargeback is declared to be valid by the merchant bank, the merchant can counterclaim it by providing the required documents. If there is evidence that the merchant has not done anything wrong, the credit card chargeback is taken off the record and the refund provided to the customer is deducted from their account by the credit card issuing bank. If the merchant is not able to prove his counterclaim, the refund is not removed from the customer’s account and the funds are taken from the merchant’s account with an additional fee. 

What are the Effects of Credit Card Chargeback to Consumers?

Before initiating the credit card chargeback, as a consumer it is important to know the consequences that it might involve. There might be instances wherein the consumer might face issues after the credit card chargeback.

  • If the consumer has filed a credit card chargeback and the bank comes to know that they were complicit or were in the know of the act i.e. it was a ‘friendly fraud’, the account of the credit card holder might be closed. This will severely impact the credit score of the consumer in a negative manner.
  • A credit card chargeback does not work in the same way as a traditional refund by a merchant would. The merchant usually refunds the money in 3 – 5 business days but the chargeback might take several months to come through.
  • It is important to keep in mind that regular initiation of credit card chargeback may result in the bank or any card issuer not taking the consumer’s issue seriously even when a legitimate claim is made. Therefore, a chargeback should be made when there has been a genuine case of deception or fraud.
  • After the credit card issuer contacts the merchant’s bank and they find the claim to be valid, the merchant can counterclaim the credit card chargeback by offering documents as proof. If the merchant successfully establishes their legitimacy, the consumer will be required to pay the chargeback fee. 

What are the Effects of Credit Card Chargeback to Merchants?

  • Mostly in cases where a different item is delivered and the customer keeps this and files a credit card chargeback, it leads to major loss for the merchant because they lose the revenue for the product and if the chargeback is deemed to be valid, will have to compensate for that too.
  • The merchant has to submit a fee every time a credit card chargeback is filed by a consumer. Even if the chargeback filed due to some misunderstanding is cancelled by the consumer, the fees and administrative costs have to be paid by the merchant. 
  • The bank account of the merchant may also be terminated if the chargeback rate goes beyond the standard. Therefore, the account would no longer be able to process any payments made through credit cards. The closed account will no longer accept credit cards, forcing the merchant to do the same.
  • Even if the merchant wins the credit card chargeback dispute, the chargeback to transaction ratio does not decline. Therefore, the risk of their account being terminated does not reduce even by proving the legitimacy of their action.
  • A terminated account basically translates to the fact the merchant will not be able to open a new account with a different processor for five years and the business they run will be black listed too.

Conclusion

The easiest route here is to first contact the merchant that you bought the good and service from and request them to refund the amount you spent. This saves both time and money for the customer and merchant too. The customers should resort to a credit card chargeback only after being denied a refund from this method. Some banks even confirm if the customer has contacted the merchant for a refund before initiating the chargeback process. However, if the claim is legitimate it should be submitted in the time period provided for the filing of credit card chargeback. Therefore, judicious use of the credit card chargeback is imperative in that it can be an effective tool for consumer protection. These prove to be a fallback mechanism for the customers if there is any inaccuracy during credit card bills or transactions. The customers should be aware of and know when and how to use the credit card chargeback to their benefit. Both the merchants and credit card holders must be responsible and avoid illegitimacy in transactions to avoid chargeback, which can have an adverse effect, especially on the card account of the merchant.