Credit Card Chargebacks - The Ultimate Guide For Merchants

Since 1974 when the US Congress passed the Fair Credit Billing Act, it provided credit cardholders the right to dispute billing errors on their credit card payments, including incorrect and unknown charges and charges for products or services that they never received.

The bill was intended to increase customer confidence in using credit cards and protect them from fraud, whether by merchants or third parties. So when a customer disputes a payment and asks the credit card issuer to reverse the charge, it is called a credit card chargeback.

While credit card chargebacks were intended to protect customers from unauthorized transactions, they can be a major hurdle for business owners, especially when the chargeback is from an error or fraud. However, today’s guide aims to help merchants understand their rights regarding credit card chargebacks.

IMAGE: UNSPLASH

Should Merchants Contest Chargebacks?

As a merchant, you should always determine which chargebacks are legitimate and which ones are not. You should always contest illegitimate chargebacks. When fraudsters know a certain merchant has a reputation for being an easy target for fraudulent chargebacks, their chargebacks rates can increase at an alarming rate without them knowing it. You will find that fraudsters usually share tips for easy targets. However, blacklists can help prevent this as well as a chargeback management solution.

Knowing the procedure and policies you are obligated to follow, including the rights and protections you have in the chargeback process, can help you reduce your chargeback rates, plus it won’t make you an easy target to fraudsters online.

What Are The Main Protection And Rights Available For Merchants?

There are certain protections you get to enjoy as a merchant regarding chargebacks. For example, you can’t receive chargebacks for a cashback transaction on a debit card, even when the customer claims fraud. Your customers can’t file a chargeback for late delivery of products or services before attempting any return. Chargebacks were created to help customers be confident about buying goods and services using credit cards.

However, the process is created to favor the consumers and merchants. Major card companies have their rules for chargebacks, and they ensure customers and merchants who are their customers are treated fairly. With that said, several vital protections exist to protect merchants through the chargeback process;

1. Chargebacks Only Cover The Purchase Price

A bank can direct a chargeback for a full or partial amount paid in a transaction. They can also issue multiple partial chargebacks. However, the total amount of all the chargebacks related to one transaction cannot be more than the original amount of the transaction. In some instances, relevant shipping costs and surcharges may also be included in the total chargeback amount.

2. Cashback Can’t Be Charged Back

Chargebacks made on debit card transactions where the customer received a cashback can’t include the cashback amount in the chargeback total.

3. Late Deliveries There Should Be A Delivery Attempt First

If your customer disputes a transaction due to the product being delivered late, they are required to at least try to return the product for a refund before they can apply for a chargeback.

There Is A Fifteen-Day Waiting Period For Chargebacks On Returned Products

If a customer returns a product, their bank cannot file a chargeback until fifteen days later. The rule aims to give the merchant enough time to issue the refund.

Reason codes

Reason codes specify the justification for the chargeback and guide how the merchant can challenge it. A code may direct a consumer to work with the merchant to try and resolve the complaint, which the issuing bank has to verify before proceeding with the chargeback.

Card companies and banks all have their processes to ensure that chargeback validity is reviewed before proceeding further. For example, they may check the purchase of the items and claim history of the customer requesting the chargeback to check for signs of any fraudulent activity.

If a customer attempts to dispute a chargeback for an invalid reason, it may be turned away before the merchant even receives a notification about the chargeback. Some banks also have set limits on the number of chargebacks a customer can file in a given time.

Most banks will also make an extra effort to ensure the cardholder has attempted to resolve the issue with the merchant for chargeback claims other than fraud. Unfortunately, banks cannot prove the validity of this, since some customers can be dishonest about their efforts to reach the merchant.

As much as there are protections for the merchants, they don’t have much power to contest chargebacks. Even if your shop has a no refund policy, the Fair Credit Billing Act allows customers to file chargebacks.

Despite that, it’s always a good idea to display your refund policies and make customers aware of your sales rules. It may be relevant when the chargeback goes through to the arbitration process and helps fight against the chargeback.

In most cases, banks tend to favor cardholders over the merchant. That’s why it is essential as a merchant always to have your transactions well documented and in strict accordance with credit card companies to have a fighting chance in a chargeback dispute.

What Is The Time Limit For Credit Card Chargebacks?

Depending on the chargeback reason code or the card network, a customer can only file a chargeback within 60 or 120 days. After that, merchants have 30 to 45 days to respond to the chargeback claims, depending on the reason code and card network.

Merchants must note that a chargeback sent to their acquiring bank is usually considered legitimate until they challenge it and it is overturned. If a merchant misses their window of opportunity, they automatically lose out and may be charged any additional fee for failing to respond.

Know your chargeback rights and ensure you exercise them. Don’t let fraudsters scare you and push you around. Use your power and rights to fight illegitimate chargebacks to protect your business.