What is a chargeback?

In many cases, you may need to dispute a charge on your credit card account. Perhaps an item you ordered online arrived damaged, but the retailer you ordered it from does not want to take it back. Perhaps you purchased an item online and never received it, or the purchase was correct but your credit card was charged twice.

These are all situations in which you can request a chargeback from your credit card instead of requesting a traditional refund. Although chargebacks should be used sparingly, as they can cause problems for merchants on the other side of the transaction, they are a valuable tool for consumers who deserve a refund.

What is a chargeback?

A chargeback occurs when you request a credit to your account for a purchase made through your credit card issuer. While you can get a refund or other transaction relief directly from the merchant where the purchase was made, a chargeback leaves the decision on the case to the credit card issuer and other parties.

Chargebacks give consumers time to decide how to get their money back when a transaction goes wrong. You may have to provide your credit card issuer with the details and evidence of your chargeback request, but he will be the one to contact the merchant, determine what went wrong, and decide whether or not you should pay for the transaction.

Chargebacks and refunds

If you are dissatisfied with a product you purchased and can afford, you must return it to the retailer with your receipt and request a refund. Orders placed online can be returned by calling customer service, providing proof of purchase, and returning the product by mail.

In either case, you will receive a traditional refund. Note, however, that chargebacks and refunds are not the same thing.

Refunds

Refunds for an item are issued directly by the retailer from whom the item was purchased. Return policies may vary, so you may not need a receipt to get a refund. In some cases, a store credit may be obtained instead of a refund, but in all cases the transaction is processed by the merchant (not the credit card issuer).

Chargeback

A chargeback occurs when you contact the credit card issuer to dispute a transaction. In this case, the money paid is temporarily refunded, after which the card issuer conducts an investigation to determine who was responsible for the transaction.

How does a chargeback work?

When a chargeback is presented to the credit card issuer, a process is initiated in which several organizations try to determine who should pay for the transaction in question. The parties involved in a chargeback are

• The account holder (you), who disputed the transaction.
• The credit card issuer, which can be a company such as Chase, American Express or Capital One
• the merchant, which is the company from which the purchase of goods or services was made
• the merchant's bank, which authorized the merchant to accept credit card payments
• the network that processed the credit card payment and decides how to process chargebacks internally, which may be Visa or Mastercard.

Filing a chargeback on your credit card triggers a series of events. The card issuer or credit card network usually immediately credits you with the amount paid for the item. However, this temporary credit is given only for the duration of the investigation and you will have to wait to find out whether the credit will become permanent.

At this stage, the credit card issuer, the credit card network, and the merchant's bank may examine the charge to determine its legitimacy and the best course of action. It may be decided that the card issuer is at fault, but the disputed amount may also be sent to the merchant, who may ignore, accept, or dispute the chargeback.

If the merchant from whom the purchase was made disputes the chargeback, disputes may arise between all parties involved and you may be asked to provide additional evidence to support your case, such as receipts or communications between you and the merchant. Ultimately, it is the credit card network, which may be one of the four major ones-Visa, Mastercard, Discover, or American Express-that decides who pays the chargeback.

The credit card issuer is required to explain the final verdict in writing. If the dispute is won, the temporary credit received will remain on the account. If it is decided that the dispute is invalid, the purchase will be restored to the credit card account.

When to use a chargeback

As a general rule, you should initiate a chargeback on your credit card only if you are unable to resolve the problem with the merchant or if you have been unable to contact the merchant to try. However, you can also initiate a chargeback if you believe that a purchase is fraudulent, that is, that a charge has been made to your account without it having been made.

Here are some examples of appropriate use of a chargeback:

• A concert for which you purchased tickets has been canceled, but the ticket seller does not want to refund your money.
• Your credit card was charged twice for a meal at a restaurant abroad.
• You purchased something online and never received it, but the merchant does not answer the phone.
• You were supposed to receive a refund for an item several weeks ago, but the refund was not issued and you are unable to contact the company.
• You notice a charge on your bill that is not yours.

If you discover a fraudulent charge on your credit card, you can take additional steps to protect your identity. Although most credit cards offer a zero-liability fraud policy that protects you from fraudulent purchases charged to your account, it is likely that a hacker or thief has gotten hold of your account number. Because they can access more personal information, you should take steps to protect yourself, including monitoring your credit reports, signing up for fraud alerts, and immediately checking all accounts for suspicious activity.

Can I dispute a credit card transaction that I paid for voluntarily?

You should never dispute a credit card transaction that you paid for voluntarily. Not only is it unethical, but you will not even be able to keep the original credit you received if you do not deserve it. You should only use a chargeback if you are a victim of fraud or if you are certain you will receive a refund, but the merchant is unable or unwilling to grant it.

How do you request a chargeback?

The procedure can vary depending on the card issuer, but most allow you to dispute transactions by phone, e-mail or using an online form or procedure. Make sure you have the details so you can explain what went wrong. The credit card issuer will investigate.

In summary.

Chargebacks provide a level of protection for consumers who use credit cards to pay for goods or services. You can request a chargeback regardless of whether the original purchase was made in person or online. However, you should only make a chargeback if you cannot resolve the problem directly with the merchant or service provider. If you can obtain a refund by contacting the merchant or service provider directly, you should take this important step first.

Written by

Jessica Parker

Loans, Mortgage, Insurance

Jessica Parker is a senior content creator with years of copywriting experience. She joined Empire Finance Pro in 2018. She holds a Master’s degree in journalism from Northwestern University, and her work has appeared in a number of top-tier finance publications including Forbes, FinancialTimes and Bloomberg.

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