Understanding Debit Card Chargebacks

Debit cards are a happy medium between credit cards and cash. They make it easier for cardholders to avoid debt by paying directly from their account balances without the hassle of holding bills in their wallet.

Merchants that accept debit card payments open their business to a wider class of consumers who prefer simplicity and convenience in financial transactions. But like credit card payments, debit card payments are prone to chargebacks too.

Although the chargeback process is similar for debit and credit payments, there are some differences merchants should know. Here’s an overview of debit card chargebacks,

What is a debit card chargeback?

A debit card chargeback is when a cardholder challenges a transaction with their issuing bank, which reverses the transaction.

From a merchant’s perspective, debit card and credit card chargebacks are similar since they result in lost merchandise and revenue and chargeback fees.

Difference between debit and credit card disputes

Credit cards provide cardholders with lines of credit from their issuing banks. The issuer usually extends the cardholder credit to cover losses pending further investigations during a transaction dispute. If the cardholder wins the chargeback, they keep the funds, and if the merchant wins, the cardholder is recharged.

On the other hand, debit cards are directly linked to cardholder saving or checking accounts. Cardholders can dispute debit card charges arising from fraud or abuse. Otherwise, the cardholder must work with the merchant to receive a refund.

Since money in dispute belongs to the cardholder and not the issuing bank, the disputed amount isn’t credited to the cardholder until the dispute is resolved. If the bank favors the merchant, the cardholder doesn’t get their money back.

Who is liable in a debit card dispute?

The Consumer Credit Protection Act (Regulation Z) governs credit card transaction disputes. Under this law, cardholders are liable for up to $50 for unauthorized transactions regardless of the fraudulent amount if they report it within 60 days of the statement being issued. A cardholder might not be liable for charges if a card is reported stolen or lost.

On the other hand, the Electronic Funds Transfer Act (Regulation E) covers debit card transaction disputes. Regulation E dispute guidelines are as follows.

When the bank agrees to a refund, debit reversals take up to 10 days because of the complexity involved in actual cash refunds, while credit reversals take one to two business days.

Both debit and credit card transactions are covered by card brand regulations which offer more consumer protection than Regulation E and Z. Issuing banks can choose to extend these rights to cardholders, but they aren’t required to.

Can you fight friendly fraud?

Yes!

In cases of merchant error, it’s recommended to issue refunds. However, in friendly fraud incidents, you should challenge the chargeback.

Like with credit card chargebacks, you should provide compelling evidence when fighting debit card chargebacks. The documents qualifying as compelling evidence vary depending on the chargeback reason code.

Note: Sticking to card network chargeback timelines is important to improve your chances of success.

How merchants can prevent friendly fraud

Whether caused by friendly fraud, customer dissatisfaction, or true fraud, chargebacks are costly and time-consuming. Merchants can save time and money by taking steps to prevent debit card chargebacks.

Be generous with refunds

When cardholders file a dispute, they’re after a transaction reversal, not the chargeback process. If the cardholder’s claim is legitimate, it’s cheaper to issue a refund before it escalates into a chargeback.

Have a serious customer support

Make sure the customer knows how to reach your support team and has multiple communication channels. The support staff should be friendly, patient, and empowered to resolve customer concerns.

Make the return, refund, and exchange policies clear

Your return policies should be available and clear on all checkout and product pages to avoid customer confusion.

Get reliable fraud protection

Having a robust fraud protection strategy and tools can help reduce chargebacks. Solutions like AVS, CVV, 3-D secure, and multi-factor (MFA) authentication add a layer of protection to your business.

Justt helps merchants implement effective debit card chargeback prevention and mitigation strategies. In addition to pre and post-chargeback prevention tools, we use chargeback intelligence to flag potential chargeback triggers and recover revenue lost through chargebacks. 

To learn more about debit card chargebacks, contact us today.