The Complete Guide to Chargebacks

At some point or another if you carry a credit card, you will be faced with either considering or requesting a charge-back. Here is your one stop comprehensive guide to everything you need to know when dealing with credit card companies and charge-backs.

What Is a Charge-back?

In its simplest terms, a charge-back is a refund of sorts. It is also referred to as a “reversal” and occurs when a credit card holder requests that a charge or transaction that has been made on their credit card is reversed or refunded, after it has been completed. When you charge something on your credit card, the bank that issued your credit card pays the merchant, and then sends you a bill. When you “charge-back” an item, the bank removes the total from your bill, and re-bills the merchant.

Some of the circumstances that may arise in which a consumer may request a charge-back include the following:

• The purchase was made fraudulently and/or the cardholder did not authorize the purchase.
• The consumer did not receive the merchandise that was purchased.
• The merchandise purchased was different from advertised.

Although charge-backs may be requested for purchases made on credit cards and debit cards, this area is one which slightly tips the scales in favor of credit cards. If you request a charge-back on a purchase made with a debit card, you will most likely need to prove that the purchase was made fraudulently, whereas charge-backs on credit cards require the cardholder to simply contend that the product or service was never received. In short, if you are worried about charge-backs, it is an easier process with a credit card than a debit card.

How to Start the Charge-back Process

The process usually begins when you realize you have received something different than what you thought you had purchased, you have purchased something but received nothing, or you did not purchase something that is billed to your credit card. First, you will want to attempt to work out an agreement with the merchant. Often times, just mentioning a charge-back is enough to get the merchant’s attention. Most merchants would rather issue the refund or correct an error, than deal with a charge-back and potentially suffer penalties from the credit card processor because of the charge-back. Sometimes, they may even lose the ability to accept credit cards if there are too many charge-backs on their record. It is because of these potential repercussions that a merchant will most likely work with you if you are not satisfied with a purchase made with your credit card.

Sometimes however, you will not be able to work out a fair agreement with the merchant and will have to pursue the charge-back. You may even be dealing with unscrupulous or fraudulent merchants who aren’t concerned with any potential repercussions they may suffer from a charge-back and who will even deny the claim, hoping the consumer will not go through the process of requesting a charge-back. This is of course when you will have no choice but to contact your bank or credit card provider and actually request the charge-back.

Usually you will be issued a temporary refund or credit. The bank will then send you a form to complete and may ask for additional details, before approving or denying your charge-back. In order to raise the chances of approval, you will need to make sure you include all of the details of the purchase and return the requested documentation in a timely manner.

Can a Charge-back Be Denied?

Because of the direct negative impact that charge-backs may have on merchants, the entire process is taken quite seriously and will be investigated completely. There is a chance that your request will be denied for any of the following reasons:

You Have Not Given the Merchant a Chance to Correct – You have to give the merchant a chance to correct an error or send you the merchandise you purchased. It is difficult to prove that a merchant will not send you the proper item when you haven’t notified them or asked to receive the proper item. Also, if you return an incorrect item or flawed item, make sure you retain proof of the return for your records.

Insufficient Evidence – make sure you send in sufficient evidence to prove that you either did not receive what you ordered or a purchase was made fraudulently.

Untimely Response – It is important that you check your statements monthly to make sure there are no fraudulent charges. Timeliness also pertains to returning the evidence and forms required when you have requested a charge-back. Do not let the documents sit on your desk for a long period of time if you want your charge-back to be taken seriously. Remember also that many merchants have a department or team of legal experts whose jobs are specifically to dispute charge-backs. If they feel that you are attempting to defraud them, they may come after you for the charge-back.

What to Do If a Charge-back is Denied

If a charge-back is denied the disputed charge will be returned to the credit card and you will be responsible for paying it. If you still believe you should receive a charge-back after it has been denied, you could also file a lawsuit in small claims court. Even though it is small claims, it still ends up costing the credit card money to engage the legal department and travel to your hometown to defend themselves in your case. Small claims court is a fairly easy process that requires completing a form or two and pay a filing fee which is usually around $20. Sometimes just threatening to file a case in small claims court will result in an agreement that works for you. Otherwise, the company may decide to settle or just fail to show up at trial. If you live far enough from the company’s headquarters, they may decide as mentioned above, that it isn’t worth sending the legal team to your jurisdiction.

Sometimes in large companies, paperwork such as notices and small claims court matters are lost or misplaced. When the other party doesn’t show up in court, for any reason, a default judgment is issued so long as you have the slightest proof to back up your claim. If however, the company does appear in court, you may still end up with a positive outcome if you can prove that the company is at fault. In conclusion, there is really no reason that we, as consumers, should ever be stuck with merchandise we either didn’t order or are not happy with. Between working with the merchant, requesting charge-backs, and threatening with small claims court, consumers have a number of options when faced with fraudulent purchases or services that aren’t quite what we wanted. The protection that credit cards provide is just one more reason to shop with credit cards versus any of the other options.