What is a Chargeback?
In its simplest definition, a chargeback merely reverses a credit card sales transaction. In the Visa 2016 chargeback management guidelines, it says that a chargeback “provides an issuer a way to return a disputed transaction.”
It pushes back up the line the debt for the items the cardholder has purchased: from the purchaser to his card issuer, to the merchant’s bank, and then back to the merchant. All of these steps happen within the transaction processor’s network. It deletes a charge from a cardholder’s statement and, through a middleman, “charges back” the original amount to the merchant.
It is a powerful tool for the consumer. With the chargeback process, the merchant loses a sale and absorbs the costs of processing the chargeback.
In addition, credit card companies apply additional charges to merchants who have too many chargebacks.
What Does a Chargeback Cover?
You can resort to a chargeback for any of the following reasons:
- The merchant goes into administration – the store where you’ve purchased from has gone bust.
- The quality of the item is unacceptable – the goods were not according to their description or were defective.
- Non-delivery of items – you never received the goods that you’ve paid for and the company refuses to refund you.
- A technical issue on your transaction – it could be an expired authorization or a processing error by the bank.
- Clerical error – the merchant charged you multiple times or billed you for an incorrect amount.
- You were a victim of fraud – someone committed fraud and made a purchase you did not authorize
The Timeframe for a Chargeback Claim?
As a rule, consumers have between 60 and 120 days from the time of the original purchase to file a chargeback. After that, the card companies give merchants 45 days to respond, should they want to dispute the claim. These are the rules of the credit card processing companies and they vary according to the card issuer whether they be Visa, Mastercard, American Express, or Discover card.
After the merchant submits their response, the merchant bank will investigate the case and come out with a decision. In case there is a need for arbitration, the entire process can take much longer to complete.
1. First, Talk to the Merchant
Most credit card companies will advise that you to first reach out to the merchant and try to resolve the problem.
Most of the time, if a customer is unhappy with something, the merchant will refund their money.
Many consumers do not realize how loud their voices are as a customer and what kind of power they actually have over the merchants. The consumer has a right to demand from the merchant to make things right to the satisfaction of their customer.
There are reasons why this is a good first step aside from taking a shot at the merchant’s customer-focused values. Having a paper trail that tracks what you’ve done and who you’ve talked to can be an important card in case your claim gets lost, or if the merchant disputes your claim.
Keep a bit of a journal so you know exactly who you’ve already talked to and what the results have been. Banks process a lot of these matters on a daily basis, so sometimes you can end up talking to different persons each time you call.
2. Theft or Fraud: Understand The Suspicious Charges
In case there’s a purchase on your credit card that you did not authorize, the law says you’re liable for the first $50 in unauthorized charges. However, most card companies will not impose this amount on you if you report the charges immediately after you discover them.
If you suspect that someone has stolen your card or your card number, immediately call your credit card company, cancel the card and arrange for a replacement. The issuer might even monitor the transactions on your account for a period of time. Go through the most recent charges to your card with your card issuer to make sure that all of them are legitimate purchases.
In a lot of cases, you won’t have to take drastic measures. In fact, your issuer would probably inform you about fraudulent use of your card before you even notice it yourself. If you suspect there has been theft or fraudulent use, you can file a police report or a fraud affidavit with the Federal Trade Commission.
3. Know Your Rights And Responsibilities
If you raise a dispute with your card company, they must investigate and get back to you within two billing cycles but not later than 90 days. You don’t have to pay a charge that is subject to the dispute, but you should continue paying for the undisputed portion of your bill.
In light of this, the card company can’t report you to the credit bureaus as paying late and they cannot also collect interest on the disputed amount.
Not paying the disputed amount is actually the right thing because it preserves your rights to challenge the error under “claims and defenses.”
However, the Federal Trade Commission allows the card company to apply the disputed amount against your credit limit. For example, if you have an available credit limit of $10,000 and you dispute a charge of an airline ticket of $3,000, you will only have $7,000 in available credit until they resolve the dispute (unless you’ve asked for a credit limit increase).
On the other hand, if you lose the dispute, you will be responsible for the charge and any accumulated interest pertaining to the disputed period. If you still don’t pay at that point, you risk damaging your credit.
4. Don’t Give Up Too Easily
If you have a valid complaint and you believe that your merchant is wrong but refuses to refund your money, don’t take no for an answer.
In such a case, you’ll want to get in touch your card company. Some issuers will require a written dispute but the easiest way to start the process is to call the customer service number on the back of your credit card.
Always provide proof to back up your claims. Show emails to the seller, ads for the item in question or proof that you’ve returned the product. These are helpful pieces of evidence. You may need to provide copies of these documents to the credit card issuer.
Before you make the call, check your records if you have unintentionally signed away any rights.
For example, if you are disputing a contractor’s work on your home, check the contract first. Sometimes, contractor’s contracts provide a clause that protects them from credit card disputes. There is still a way out of this, but it makes the process more difficult.
5. Know Your Limits
Avoiding a dispute in the first place is always easier and less costly than fighting for a chargeback reversal.
The truth is, some chargebacks are harder to fight than others. It would be better if you can avoid these types of situations if possible.
For example, it is usually easier to get a reversal on chargebacks that come from North America or Western Europe. Chargebacks that originate from Russia, Ukraine, or Indonesia, are almost always impossible to win. The lesson here? Merchants should carefully scrutinize the original transaction for any indication of fraud or irregularity before going ahead.
6. File Under ‘Claims and Defenses’
If your dispute turns out to be unsuccessful, you have another chance – file a complaint under “claims and defenses”, a process that the Federal Trade Commission introduced in 1975. Unlike billing errors, a consumer has up to one year from the time of purchase to file a ‘claims and defenses’. However, you must satisfy these four criteria:
- The amount subject to the dispute is more than $50;
- You must not yet have paid the disputed charge;
- You must make a good-faith effort to claim a refund from the merchant, and;
- The merchant’s location must be within 100 miles of your home and within your state (this requirement does not apply for online purchases).
When you communicate with your card issuer after their billing error’s deadline (whether it’s 60 or 120 days), let them know that you will be using your claims and defenses right.
In a lot of cases, you won’t have to go through this avenue. If you’re a good customer (even if you’re credit card “deadbet”) , your card issuer is going to try their best to help you because they don’t want to lose your business. It might be confusing to some, but it’s good to know about it. In case you’re not okay with how your dispute turned out, there is a secondary mechanism to get a chargeback.