A chargeback is a process that allows a cardholder to dispute a transaction made with their credit or debit card and request for a refund. This is usually done when the cardholder believes that the transaction was fraudulent or unauthorized. Chargebacks are a consumer protection tool provided by card issuers, such as Visa and Mastercard. In the U.S., chargeback reversals for debit cards are governed by Regulation E of the Electronic Fund Transfer Act. Chargeback reversal for credit cards is governed by Regulation Z of the Truth in Lending Act. According to the Fair Credit Billing Act, you can also file a chargeback if you’re not satisfied with a product or service and the business or provider refuses to rectify the issue.
How do chargebacks work?
When a customer files a charge, the dispute is sent to the merchant’s acquiring bank, which then contacts the merchant. The merchant is given the opportunity to provide evidence to refute the dispute, such as proof of delivery or a signed receipt. If the dispute is resolved in favor of the merchant, the transaction is reinstated. If the dispute is resolved in favor of the cardholder, the transaction is reversed and the cardholder is refunded.
When a customer files a chargeback they dispute a charge made to their credit card or debit card and request a refund. It is a consumer protection tool provided by card issuers, such as Visa and Mastercard. Here’s a simplified explanation of how chargebacks work:
- The cardholder notices a charge on their statement that they did not authorize or believe to be fraudulent.
- The cardholder contacts their card issuer and reports the charge, providing any relevant information and documentation such as receipts or proof of delivery.
- The card issuer investigates the dispute by reviewing the evidence provided by the cardholder and the merchant.
- The card issuer makes a determination based on the evidence and decides whether the charge will be refunded to the cardholder or if the charge stands.
- The card issuer communicates the outcome of the dispute to both the cardholder and the merchant.
It’s important to note that chargebacks can be a bit complex and time-consuming, but it’s a consumer protection mechanism provided by the card issuer to protect the cardholder. The process is designed to ensure that the cardholder is not charged for a transaction they did not authorize or believe to be fraudulent. If a chargeback is filed and the card issuer finds that the charge was legitimate, the card issuer will communicate the outcome to the cardholder and the charge will stand. However, if the card issuer finds that the charge was not authorized or fraudulent, the charge will be reversed and the cardholder will be refunded.
When can a cardholder legitimately dispute a charge?
A cardholder can legitimately dispute a charge if the transaction was unauthorized, if the cardholder received goods or services that were different from what was promised, or if the cardholder did not receive the goods or services at all. Cardholders can also dispute a charge if the transaction was made with a lost or stolen card or if the cardholder was charged the wrong amount.
What is the chargeback process?
The chargeback process is a way for cardholders to dispute a transaction made with their credit or debit card and request a refund. It is a consumer protection tool provided by card issuers, such as Visa and Mastercard. The process can be broken down into the following steps:
- Cardholder contacts card issuer: The cardholder contacts their card issuer to report a fraudulent or unauthorized charge on their account.
- Card issuer investigates: The card issuer investigates the dispute by reviewing the evidence provided by the cardholder and the merchant. This may include documentation such as receipts, proof of delivery, or other transaction details.
- Determination made: The card issuer makes a determination based on the evidence provided. If the dispute is resolved in the cardholder’s favor, the transaction is reversed and the cardholder is refunded. If the dispute is resolved in favor of the merchant, the transaction is reinstated and the cardholder is not refunded.
- Outcome communicated: The card issuer communicates the outcome of the dispute to both the cardholder and the merchant.
It’s important to note that the chargeback process can be a bit complex and time-consuming, but it’s a consumer protection mechanism provided by the card issuers to protect the cardholder. The process is to make sure that the cardholder is not charged for a transaction they did not authorize. If a cardholder disputes a charge and the card issuer finds that the charge was legitimate, the card issuer will communicate the outcome to the cardholder and the charge will stand. However, if the card issuer finds that the charge was not authorized or fraudulent, the charge will be reversed and the cardholder will be refunded.
How do you file a chargeback?
Filing a chargeback can be a straightforward process, as long as you follow these steps:
- Contact your card issuer: As soon as you realize that a fraudulent or unauthorized charge has been made on your account, contact your card issuer. This can typically be done by calling the customer service number on the back of the card or by logging into the card issuer’s website.
- Gather necessary information and documentation: In order to file a chargeback, you will need to provide the card issuer with certain information and documentation. This typically includes: the date of the transaction, the merchant’s name and the amount of the transaction, the reason for the dispute, and any supporting documentation, such as receipts or proof of delivery.
- Fill out the necessary forms: The card issuer will provide you with the necessary forms and instructions on how to proceed with the dispute. Be sure to fill out the forms completely and accurately.
- Submit your dispute: Once you have completed the necessary forms and gathered the required documentation, submit your dispute to the card issuer.
- Wait for the outcome: The card issuer will investigate your dispute and make a determination based on the evidence provided. The outcome of the dispute will be communicated to you. If the dispute is resolved in your favor, the transaction will be reversed and you will be refunded. If the dispute is resolved in favor of the merchant, the transaction will be reinstated and you will not be refunded.
It’s important to note that there may be a time limit for filing a chargeback, which varies depending on the card issuer and the type of dispute. It’s also important to note that filing a chargeback does not guarantee that the dispute will be resolved in the cardholder’s favor. Therefore, it’s important to keep good records and document everything related to the transaction in question.
What do chargebacks mean for merchants?
Chargebacks can be costly for merchants as they can result in lost revenue and additional fees. Additionally, merchants may have to provide proof of the transaction and refund the cardholder, which can take a lot of time and resources. Merchants also risk having their merchant account suspended or terminated if they have a high chargeback ratio.
Three types of chargebacks
True fraud:
True fraud occurs when a transaction is made with a lost or stolen card, or when the cardholder’s identity has been stolen. This type of chargeback is usually not the fault of the merchant, but rather the result of criminal activity.
Friendly fraud:
Friendly fraud occurs when a cardholder disputes a legitimate transaction, usually because they forgot that they made the purchase or because they are disputing a recurring charge. This type of chargeback is often preventable with proper customer communication and documentation.
Merchant error:
Merchant error chargebacks occur when the merchant makes a mistake, such as charging the wrong amount or not delivering the goods or services as promised. This type of chargeback is usually preventable with proper procedures and documentation.
What’s the difference between a chargeback and a refund?
A chargeback is a process that is initiated by a cardholder through their card issuer, while a refund is initiated by the merchant. A chargeback may result in the merchant losing the sale, while a refund does not. Additionally, a chargeback may result in additional fees for the merchant, while a refund does not. A refund is a voluntary action taken by the merchant to return the money to the customer, while a chargeback is a process initiated by the customer through their card issuer. A refund can be issued without the need for a formal dispute, while a chargeback requires the card issuer to investigate the dispute and make a determination.
What is the EMV Liability Shift?
The EMV Liability Shift refers to a change in the liability for certain types of fraudulent transactions that occurred after October 1, 2015 in the United States. Prior to the EMV Liability Shift, if a fraudulent transaction occurred and the merchant did not have an EMV (Europay, Mastercard, Visa) compliant card reader, the card issuer was liable for the fraud. However, after the EMV Liability Shift, if a fraudulent transaction occurred and the merchant did have an EMV compliant card reader, but the card used was not an EMV chip card, then the card issuer would be liable for the fraud.
This shift in liability was implemented to incentivize merchants and card issuers to adopt the more secure EMV technology, which is designed to combat card-present fraud, and to shift the liability for fraudulent transactions from the card issuer to the party that has not adopted the new technology.
The Liability shift is especially important for the consumer because it means that they are now less likely to be held liable for fraudulent charges made on their card. With the new EMV technology, it is much harder for fraudsters to create counterfeit cards, and as a result, the risk of card-present fraud is greatly reduced. This means that the consumer is protected from having to pay for unauthorized charges made on their card, and they can have peace of mind knowing that their card is more secure. Additionally, it also means that merchants have an incentive to invest in more secure card readers and the technology to prevent fraud, resulting in a more secure payment environment for everyone.
Who is liable for chargebacks?
The liability for chargebacks can vary depending on the type of chargeback. In the case of true fraud, the liability typically falls on the card issuer. In the case of friendly fraud and merchant error, the liability can fall on either the card issuer or the merchant, depending on the circumstances of the dispute and the evidence provided. Additionally, the EMV Liability Shift holds merchants liable for certain types of fraud if they do not have the necessary equipment to process chip-enabled cards.
