What is a Credit Card Chargeback

Whilst credit cards are sometimes seen as a means of collecting unmanageable debt, when they are used sensibly there can be a number of benefits for the consumer. Consumer laws in a number of countries (including the US and the UK) offer additional protection to individuals paying for goods and services when using a credit card. Chargebacks are part of the process that is intended to support customers when things go wrong.

A chargeback is, rather like it sounds, an occurrence where a charge raised on a credit card account is charged back to the retailer. In the event of a chargeback, the consumer is refunded the full sum charged by the card issuer. The card issuer then charges the amount back to the retailer or retailer’s bank, which, in turn claims the money from the retailer. In some cases, the retailer’s bank will charge the retailer a handling fee for doing this.

How chargebacks work

The customer raises the chargeback query with the bank issuing their credit card. The bank will then launch an investigation. Whilst the investigation is ongoing, the amount is suspended on the customer’s account. This ensures that the customer is not charged any interest but the amount of available credit is still affected by this suspended amount. If the card-issuing bank believes that the claim is genuine, the sum is charged back to the retailer’s bank and then that bank can investigate further. If evidence can be supplied that the consumer is liable, the retailer’s bank can still charge the amount back to the card-issuing bank again.

Grounds for a chargeback

A customer may raise a chargeback query for a number of reasons. This might include:

1 – Goods are not received

2 – Goods arrive damaged or not as described

3 – A charge appears on a statement that the customer does not recognize

4 – The customer may have been charged twice or may have been overcharged.

5 – The customer may have returned goods but not received a refund.

In most cases, the burden is on the retailer to prove that the customer is liable for the charge. This can be very difficult to establish. If a customer is not asked to sign for a parcel, for example, then the chargeback will be made against the retailer, even if the delivery company says that the delivery was made.

What are the customer’s responsibilities?

Customers are asked to try and resolve disputes with retailers directly but are NOT obliged to do this. Where goods are defective, the customer must attempt to return them to the retailer before raising a chargeback. If the customer claims that goods have not been received and those good subsequently arrive, he/she is bound to inform the card-issuing company. If the customer returned the goods, he/she must provide proof of postage.

The chargeback process is designed with the customer in mind and businesses, particularly those that sell online, are at a definite disadvantage through this process. This is intended to encourage businesses to maintain robust processes and good customer service but sadly fraudulent customers do sometimes abuse the system. Banks can also terminate retailers’ merchant accounts where chargebacks reach a certain threshold or where the retailer attempts to ‘blacklist’ customers or bully them into not making chargebacks. Realistically, customers should always aim to give retailers a chance to resolve disputes and should aim to reserve the chargeback process for those times when more formal help is needed.