Disputing an auto repair chargeback is possible but time-consuming


Your Business Credit
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Question Dear Your Business Credit,
We own a car repair shop. A woman from out of state broke down and needed an engine. She didn't want a new one, so we put in a rebuilt one. The engine has a warranty, but she didn't want a warranty on the labor. She drove home about 500 miles, no problem.

Shortly after getting home, she's complaining the engine is making noise. The engine is under warranty -- but she would have to pay the labor and she doesn't want to. So she put a dispute with AAA, and they said the repair shop is not at fault, they are willing to put an engine in, but you have to pay labor. So she got mad and called the credit card company for a chargeback. They just took the money out of our account without any warning. We disputed the chargeback and it's still pending.

Out of all the articles I have read, where are the merchants' rights? All I read is about the consumers' rights. We have been in business 25 years. This is the first chargeback. What do we do if they deny us? Are we out $4,600 -- while she's driving around with our engine? Can we ask the credit card company for arbitration? Please advise, thank you. -- Margaret

Answer Dear Margaret,
I can understand why you are upset. It sounds like you are honest people who did the best you could to help someone in a jam and now are getting burned.

Yes, you do have some rights in this situation, but to be honest, you will probably need to devote a day or two of your time to protect them. Given the size of the charge, it is probably worth it, but if you don't have time, you may want to look into hiring a service that helps fight chargebacks. Ask merchants in your industry for recommendations to a service that is reputable. Typically, there are deadlines for filing disputes and you don't want to put this off.

If you want to fight the charge yourself, your first step is to read your merchant agreement to see what rights you have. As Visa's Chargeback Management Guidelines for Visa Merchants says, "In most cases, the full extent of your financial or administrative liability for chargebacks is spelled out in your merchant agreement."  

Your merchant agreement is the document you signed with your acquiring bank so you could accept credit cards. Your acquiring bank is the one that processes and settles your daily credit card transactions and then settles those charges with the card associations, such as Visa or MasterCard. An example of an acquiring bank is Wells Fargo.

You need to look at the guidelines from the relevant credit card association to find out how to handle the specific type of chargeback.

Let's say the customer put the charge on her Visa card. Visa uses "reason code 53" for a chargeback for "defective merchandise." The Visa chargeback guide says that code 53 may apply to quality disputes in car repair situations.

In Visa's guide on chargebacks (page 53, for your reference), it says there is a "possible remedy" for this type of dispute but you have to provide evidence the customer returned the defective merchandise to you and you repaired or replaced it.  Of course, replacing the engine you sold her requires the customer to drive back into town. And it still doesn't solve the problem that the customer is refusing to pay the labor costs for replacing the engine.

If she doesn't drive the car back, you can dispute the chargeback. Chargebacks911, a service that helps merchants fight chargebacks, has published a blog post on fighting for your rights in your exact situation.

It says that merchants should dispute this chargeback if "the supposedly defective merchandise was not returned or the unsatisfactory service has not been canceled. In order for Visa chargeback reason code 53 to be valid, the customer must make a legitimate attempt to either return the merchandise or cancel the service. If the customer does not make a full attempt, the chargeback is not valid."

Of course, you will have to prove that you have offered to replace the engine and the customer has not returned the merchandise. On page 90 of Visa's merchant guidelines explain how to provide "compelling evidence" when you are disputing a chargeback. In the case of reason 53, it mentions you can use evidence such as photos or emails to support that the person who filed the chargeback is still in possession of the merchandise.

If she is willing to drive the car back to have the engine replaced, there's still the matter of the dispute over labor costs. In that case you should provide evidence of the warranty she signed, showing that labor costs are not included.

If you present compelling evidence, the card-issuing bank must try to contact the cardholder with the new information and show that it has done so via a service called Visa Resolve Online. If the issuer refuses your evidence, it must file a pre-arbitration case, the first step to getting arbitration.

Of course, it is possible your customer did not pay by Visa card. If the customer used MasterCard, the code for defective merchandise is 4853. MasterCard's chargeback guide provides detailed information on how to dispute a charge with this code on p. 3-117 and on how to seek arbitration on page 6-1.   

At American Express, the code for defective merchandise is reason C32. American Express discusses how to dispute a chargeback on page 49 of its Merchant Reference Guide.

It always upsets me when I hear about mom-and-pop businesses getting hurt because I know how hard it is to stay in business. I hope you are able to get your money back. 

See related: 8 tips for merchants to avoid credit card chargebacks, Complaints data show which cards pay refunds most, least often

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Published: March 30, 2015

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