A chargeback reverses a transaction on your credit card when you file a dispute

A chargeback reverses a transaction on your credit card when you file a dispute

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  • A chargeback occurs when a credit card issuer reverses a charge on your card.
  • Chargebacks are issued for fraudulent transactions, billing errors, and undeliverable or unacceptable goods and services.
  • Consumers may be better off requesting a refund from the merchant before disputing a transaction with their credit issuer.

Have you ever seen a charge on your credit card that didn’t seem quite right?

It may be from a company you’ve never heard of or maybe you’ve been charged twice for the same transaction. Or maybe you ordered a new outfit or a gift for someone else who never arrived from the other side of the world.

In these cases, you may be able to dispute the charges with your credit card company. If your complaint is reasonable, they may issue a chargeback to your card. Here’s how the process works.

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What is a chargeback?

A chargeback is the reversal of a charge on your credit. It is issued after a consumer disputes a transaction and the card issuer determines that the cardholder has a reasonable complaint. The transaction amount is credited back to the consumer while the issuer and merchant investigate.

Mark Stewart, in-house accountant at news site Step By Step Business, says the Fair Credit Billing Act (FCBA) of 1974 outlines the process a merchant must follow for chargebacks.

“The law was designed to protect consumers from unfair billing to build customer confidence in credit processes,” Stewart said.

Under the FCBA, Stewart says, consumers have rights over open-ended credit accounts, such as credit cards. These also coincide with the billing practices that creditors must follow. Chargeback rights include:

  • 60 days to contest certain charges
  • Acknowledgment by the creditor, in writing, that he has received the complaint within 30 days
  • Explanation in writing if your account contains an error and what corrections have been made
  • Written explanation if the investigation determines that there was no billing error
  • Resolution within two billing cycles (but no more than 90 days)
  • 10 days for the consumer to dispute the result of the investigation

The Federal Trade Commission (FTC) enforces FCBA rules. Creditors are required to follow the settlement procedure exactly as instructed by the FTC, or they will not be able to collect the amount in dispute, even if it is a valid charge. This also applies if the creditor flags your account as overdue while the disputed charge is under investigation.

After investigation, the consumer will keep the disputed amount or the amount will be deducted from his account a second time.

Chargeback vs Refund

Chargebacks and refunds are two different things. A chargeback is a credit from the credit card company, while a refund is a credit directly from the merchant. Getting a refund is much easier than getting a chargeback, so in many cases it’s best to work with the merchant first to request a refund.

Here’s a side-by-side comparison of a chargeback and a refund:

However, in some cases, it doesn’t make sense to ask the merchant for a refund.

Reasons for requesting a chargeback

Disputing charges on your credit card should be reserved for what the FTC describes as “billing errors.”

These include:

  • Fraudulent accusations. Your credit card has been stolen or charges appear from unauthorized users. Federal law states that cardholders are not liable for unauthorized charges over $50.
  • Billing errors. Some examples of debit errors are: your card is charged the wrong amount, a subscription service charges you even though you canceled, math errors, the creditor did not make a payment or return, or the creditor has not sent an invoice to your current address. (assuming you notified them 20 days before your change of address closing date).
  • Undelivered or unacceptable goods. Goods or services were not acceptable or delivered as agreed.

How to request a chargeback

If you think you have a valid reason for requesting a chargeback, you should start the process with the source of the problem. Many credit issuers require you to contact the merchant first. After all, it’s easier for you and the merchant to process a refund.

When contacting the merchant, be sure to keep track of:

  • Who did you talk to
  • What was their response
  • The date you contacted them

If the problem has still not been resolved, contact your credit issuer. Some have simplified the process by allowing customers to select individual transactions for disputes in their online account. You can also contact the credit issuer by phone, or you can always send a letter.

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