Chargeback

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What is a Chargeback?

A chargeback is a consumer’s dispute against the legitimacy of a charge on their credit card.

Amex, Discover, Mastercard, and Visa allow customers to issue chargebacks for a variety of reasons, including:

• Suspected fraud
• Unauthorized charges
• Products or services never rendered
• Products or services not delivered as expected

Understanding Chargebacks

One of the primary consumer benefits to paying with credit cards over cash is the ability to issue chargebacks against unreasonable, unexpected, or fraudulent charges. When such charges occur, customers don’t have to fight with merchants directly for cancellations or refunds; instead, they can turn to their card-issuing banks to dispute the charge on their behalf.

Merchants and service providers–especially those selling to consumers online–must accept chargebacks as a fundamental part of doing business. That being said, business owners have the opportunity to dispute chargebacks when they occur.

By providing evidence of a sale, the customer’s agreement to that sale, and adequate communication with the customer, merchants can prove a charge’s validity and have a chance to retain the charged amount.

Further Explanation

A chargeback is a payment charge that gets returned to the originating payment card after a customer successfully disputes a transaction on their account statement. This process can be initiated by either the merchant or the cardholder’s issuing bank, and can happen on both credit card and debit card accounts.

Chargebacks can be considered refunds, since they returns specified funds that were taken from an account through via a previous purchase. They differ from voided charges, which never fully authorize for settlement. Cardholders have a specific timeframe in which they are able to dispute charges, known as the chargeback period (this window will vary but by processor and transaction type, but are typically 120 days after the initial purchase or delivery of purchased goods).

Chargebacks often take several days to complete, or "fully settle", as they must be reversed through a process that involves multiple entities.

• Chargebacks for debit cards are governed by Regulation E, of the Electronic Fund Transfer Act (EFTA).
• Chargebacks for credit card transactions are governed by Regulation Z, of the Truth in Lending Act (TILA).

See: Chargeback Reversal

Chargeback Example

A customer opens their credit card statement online and identifies a charge for a purchase they don’t recognize. They immediately contact their credit card company to initiate the chargeback.

The offending merchant receives notification of the chargeback and has the opportunity to contest the chargeback by providing proof of the sale’s legitimacy.

If they instead opt to accept the chargeback, the disputed amount is immediately refunded to the customer, and – depending on the merchant’s credit card processor (merchant account provider) the merchant will pay anywhere from $10 to $50 per chargeback.

See: Chargeback Fee

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