Consumers in the United States have been afforded certain chargeback rights allowing them to dispute billing errors on their credit card statements since the passing of the Fair Credit Billing Act in 1974. This act was designed to protect consumers from fraudulent or erroneous charges and to give them a mechanism for seeking a refund if they felt they had been wronged by a merchant. However, as a merchant, it is important to be aware of your chargeback rights and the procedures you need to follow to dispute a chargeback.
While chargebacks were originally designed to protect consumers, they have increasingly been used as a means of fraud and abuse. Despite the original intent of the law, chargebacks can be filed for reasons that have nothing to do with actual errors, such as buyer's remorse or as a form of what is effectively shoplifting. By understanding the chargeback process and the rights of merchants, you can better protect yourself from chargebacks that are unwarranted or fraudulent.
The chargeback process begins when a cardholder contacts their card issuer to dispute a charge on their account. If the issuer believes the cardholder’s claim is likely to be true, the issuer will reverse the charge and issue a chargeback to the merchant’s bank who will pass it along to the merchant. The merchant will then have the opportunity to dispute the chargeback if they believe it is unwarranted or fraudulent. The issuer can then challenge the merchant’s claims and the two sides can go all the way to arbitration decided by the credit card network if necessary.
Chargeback disputes can last for several months, tying up valuable capital and interrupting routine business operations. If the chargeback is ultimately found to be valid, the merchant will be responsible for paying the chargeback fee as well as the amount of the original charge, which can be substantial.
While issuers have some discretion in when they pursue chargebacks and how they respond to chargeback disputes, there are certain chargeback rights inherent to all merchants, regardless of the issuer involved or which credit card network a merchant accepts. Understanding these rights is critical to successfully disputing false chargebacks.
One of the most important chargeback rights afforded to merchants is the right to chargeback representment. If a chargeback is issued against a merchant, the merchant has the right to challenge the chargeback. This means that the merchant can provide documentation to the credit card issuer showing that the charge is valid, and that the chargeback is unwarranted. Merchants who successfully dispute chargebacks will be reimbursed the amount of the charge itself and, depending on the payment service provider they use, sometimes the associated chargeback fees.
Under the credit card network regulations, card issuers are required to wait 15 days from the date a customer returns a good until they can file a chargeback. A cardholder can request a chargeback before then but the issuer must still wait. This allows merchants the time to issue a refund to the customer to avoid a chargeback.
Another important chargeback right is the right to documentation. Merchants have the right to request and receive documentation from the cardholder’s issuer to help them understand the charge in question. This can include chargeback reason codes, supporting documentation, and other relevant information. In some cases, this documentation may be enough to prove that the charge is valid and avoid a chargeback.
If the merchant can prove that their goods were delivered late due to matters out of their control, they may avoid a chargeback. In these instances, the issuer must ensure that the cardholder has first tried to resolve the issue by attempting to return the late item to the merchant before processing a chargeback.Â
Merchants also have the right to only pay the original transaction price when chargebacks are issued. Chargebacks will include shipping and handling fees and taxes, but merchants are not required to pay any additional penalties on top of standard chargeback fees. In cases where the cardholder has been refunded or the merchant has issued a credit, the issuer cannot charge the merchant for the chargeback. This protects merchants from having to pay twice for the same charge.
At least in the U.S., cash-back transactions are not uncommon, especially in places like supermarkets. This is when a customer charges more to their card than the actual value of the goods purchased and receives the difference in the form of cash from the merchant. Cardholders are not allowed to then file a chargeback on the cash-back portion of their transaction. Once a transaction involves cash it is not subject to chargeback rights.
Certain merchant chargeback rights are enshrined in law. It doesn't matter whether you accept Visa, Mastercard, American Express or another credit card. Under the Fair Credit Billing Act, merchants have the right to dispute chargebacks that are the result of billing errors. Billing errors can include unauthorized charges, charges for goods or services that were not received, charges for the wrong amount, or math errors. If a chargeback is issued for a billing error, the merchant can provide documentation to show that the charge is valid and avoid having to pay the chargeback. By understanding chargeback rights and procedures offered under the law and credit card network regulations, merchants can protect themselves from credit card payment disputes.
Chargebacks can be complex and time-consuming, and working with a company like Justt that specializes in chargeback mitigation can save you valuable time and resources.
Chargebacks have short-term and long-term effects on merchants. Each successful chargeback translates into lost revenue, services or merchandise shipped, and a chargeback fee. If you receive too many chargebacks, you may incur higher payment processing rates or lose the ability to process credit card payments entirely.
Some chargebacks point to real issues within the business’ processes that need addressing to provide better service and/or products. Therefore, while all chargebacks hurt a business’ bottom-line, some may be used to improve business operations.
A merchant can opt to accept the payment reversal or submit compelling evidence to disprove the chargeback claim.
Cardholders can only file chargebacks within stipulated time limits – usually 120 days. Merchants also have to stick to deadlines set by the issuing bank, card network, or payment processor, and their evidence should match the reason code.
At the representment stage, the issuing bank determines whether the evidence submitted is sufficient to disprove the chargeback claim. However, the card network makes the final decision if the case reaches arbitration.
Some merchant protections within the chargeback process include:
If the merchant loses the chargeback during representment, they can seek arbitration.
