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All About Credit Card Chargebacks

Many cardholders have access to hidden credit card benefits. For example, you may be unaware of the fact that your credit card company offers roadside assistance. So if your car suddenly breaks down or you find yourself with a flat tire, you can call someone for help. Credit card chargebacks are another useful tool for consumers. But for merchants, they’re often a pain in the butt. Here’s the lowdown on how credit card chargebacks work.

See how long it’ll take to pay off your credit card debt.

What Is a Credit Card Chargeback?

A credit card chargeback is the reversal of a transaction and the issue of a refund by a bank or credit card issuer rather than a merchant. It’s a protection that credit card users can take advantage of when they need to dispute charges for unauthorized purchases. And it’s an option for consumers when merchants refuse to give them their money back.

There are several legitimate reasons to request a chargeback (if the merchant won’t cooperate). If there’s a billing issue, you never received something you ordered or a fraudulent purchase was made with your credit card, you have the right to file a chargeback. Under the Fair Credit Billing Act, you can also get a chargeback if you’re unhappy with the quality of a product or service you paid for.

While many credit cardholders use chargebacks as a last resort, some abuse them. That’s part of the reason why merchants often dislike them.

Why Merchants Hate Credit Card Chargebacks

All About Credit Card Chargebacks

Merchants and business owners who try to avoid chargebacks argue that they cost them money. When a bank or card issuer agrees to give a consumer a refund, the merchant loses a sale. What’s more, merchants must pay a fee for every chargeback that occurs. Credit card chargeback fees can be as high as $100.

Credit card processing companies may charge higher rates to merchants with chargebacks. And if a business ends up with a lot of chargebacks, a credit card processor can end its relationship with that merchant.

As you can see, retailers have a lot to lose when consumers request chargebacks. And while merchants can dispute credit card chargebacks, banks and card issuers often give the cardholders what they want. Unless a cardholder agreement says otherwise, a merchant can legally pass her chargeback fees on to her customers by raising prices. But in doing so, she could lose clients (especially if other businesses charge less for similar goods and services).

Plus, merchants have to deal with consumers who file chargebacks for the wrong reasons. For example, a customer may request a chargeback simply because he regretted making a purchase or believes that contacting his bank is easier than trying to talk a business owner into issuing a refund. Some shoppers also use chargebacks to avoid return fees or avoid paying off credit card debt.

How to Request a Credit Card Chargeback

The credit card chargeback process has a lot of moving parts. But if you’re a consumer, your role is fairly straightforward. All you need to do is file a dispute. Your credit card issuer may expect you to submit a written complaint. But in some cases, disputing a charge merely involves making a call to customer service or filling out a form online.

Of course, if you want a refund from your bank or credit card issuer, you’ll need to act quickly. In order to be entitled to all of the protections available under the Fair Credit Billing Act, you may need to dispute charges within 60 days. But the exact time frame for disputes can vary depending on the company (or financial institution) that manages your credit card account.

You’ll need to contact your card issuer directly or visit their website to get all of the details regarding credit card disputes. You’ll also need to be prepared to provide evidence that you deserve a refund (like a chain of emails showing that contacting the retailer didn’t resolve the issue), just in case there’s pushback. But these days, the odds of winning credit card disputes are often in favor of consumers.

Getting a Refund

All About Credit Card Chargebacks

After you dispute a credit card charge, the card issuer will contact the merchant to determine whether your request for a chargeback is valid. Meanwhile, you temporarily avoid having to pay the disputed charge (and possibly any associated charges and shipping fees) or worry about it hurting your credit score. You may receive a provisional refund. But sometimes getting a full refund from a credit card issuer can take a series of months.

If your chargeback request is valid, the merchant and its bank will do their part to settle the matter. But if you file a chargeback for an illegitimate reason and your card issuer denies your request, you (the consumer) may have to pay a fee. If there’s proof that you committed friendly fraud – meaning that you made a false claim in order to secure a refund – your card issuer may close your account.

Bottom Line

A credit card chargeback can be a useful protection for a dissatisfied consumer with an unauthorized charge or billing error. But it’s best to only request a chargeback if it’s absolutely necessary. It’s important to work out the issue with the retailer first. After all, merchants have rights, too.

If your credit card company decides that you don’t need a refund, you could lose your money and possibly your ability to use your credit card.

Photo credit: ©iStock.com/martin-dm, ©iStock.com/vladimirzahariev, ©iStock.com/AntonioGuillem

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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