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The Fair Credit Billing Act outlines the guidelines around chargebacks in order to protect consumers.
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A chargeback is 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 seeking a refund with 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 have been from a business you’ve never heard of or maybe you were charged twice for the same transaction. Or, perhaps you ordered a new outfit or a gift for someone else that never arrived from the other side of the world.
In these cases, you may be able to dispute the charge with your credit card company. If your claim is reasonable, it can issue a chargeback to your card. Here’s how the process works.
What is a chargeback?
A chargeback is the reversal of a charge on your credit. It’s issued after a consumer disputes a transaction and the card issuer determines the cardholder has a reasonable claim. The amount of the transaction is credited back to the consumer while the issuer and merchant investigate.
Mark Stewart, an in-house accountant at information site Step By Step Business, says the Fair Credit Billing Act (FCBA) of 1974 outlines the process that a merchant has to follow for chargebacks.
“The law was designed to protect consumers from unjust billings to build customer confidence in credit processes,” Stewart says.
Under the FCBA, Stewart says, consumers have rights for open-end credit accounts, such as credit cards. These also coincide with billing practices that creditors must follow. Rights regarding chargebacks include:
60 days to challenge certain chargesAcknowledgement by the creditor, in writing, that it received the complaint within 30 daysExplanation in writing if your account has a mistake and what corrections were madeExplanation in writing if the investigation determines there was no billing errorResolution within two billing cycles (but not more than 90 days)10 days for the consumer to challenge the result of the investigation
The Federal Trade Commission (FTC) enforces rules for the FCBA. Creditors are required to follow the settlement procedure exactly as outlined 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 reports your account as delinquent while the disputed charge is being investigated.
After the investigation, a consumer will either keep the disputed amount or the amount will be deducted from their account a second time.
Note: If you have issues with the quality of a product or service you received from a business, try to resolve the issue directly with the business. In situations like these, the Fair Credit Billing Act doesn’t protect you, so a chargeback likely won’t be approved.
Chargeback vs. refund
Chargeback and refunds are two different things. A chargeback is credit back from the credit card company, while a refund is credit back directly from the merchant. Getting a refund is much simpler than getting a chargeback, so in many cases it’s best to work with the merchant to request a refund first.
Here’s a side-by-side comparison of a chargeback vs. a refund:
Chargeback
Refund
For fraudulent charges, billing errors, and uncooperative merchantsCustomer disputes the charge with their credit card issuerCustomer receives credit back from the credit card issuerMay take weeks for the credit issuer to make a determination about a disputed transactionFor problems with service or merchandiseCustomer contacts the merchant directlyMerchant gives the money backMerchant can process a refund in days
However, there are some instances where it doesn’t make sense to request a refund from the merchant.
Reasons to request a chargeback
Disputing charges on your credit card should be reserved for what the FTC describes as “billing errors.”
These include:
Fraudulent charges. Your credit card was stolen or charges appear from unauthorized users. Federal law states that cardholders are not responsible for unauthorized charges greater than $50.Charge errors. Some examples of charge errors include your card being charged for the wrong amount, a subscription service charging you even though you canceled, math errors, the creditor failing to post a payment or return, or the creditor failing to send a bill to your current address (assuming you notified them 20 days before the closing date of your change of address).Undelivered or unacceptable goods. Goods or services weren’t acceptable or delivered as agreed upon.
How to request a chargeback
If you feel you have a valid reason for requesting a chargeback, you have to start the process with the source of the problem. Many credit issuers ask you to contact the merchant first. It’s easier for both you and the merchant to process a refund, after all.
When you do contact the merchant, be sure you keep track of:
Who you spoke withWhat their response was The date you contacted them
If the issue still hasn’t been resolved, contact your credit issuer. Some have made the process easy by allowing customers to select individual transactions for disputes in their online account. You may also contact the credit issuer over the phone, or you can always send a letter.