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Account management

What is a credit card chargeback, and how does it work?

If you paid for something with a credit card, you can dispute it through the card issuer and let them take the battle to the merchant

Summary

If a merchant won’t give you a refund for an item that’s damaged or not as described, your credit card company may be able to help. Read on to find out how a chargeback works and when you should request one.

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If you aren’t familiar with the chargeback process, you should be.

The COVID-19 shutdown has left many of us dealing with canceled travel and events and ordering more goods online than we were before. Merchants are understaffed, the postal service is stressed and you may not always be getting what you paid for.

“As consumer activity has shifted online during the coronavirus, we have seen more cases of dispute, driven by issues like non-receipt of goods and services,” says Jennifer Delgado, spokesperson for Discover. “These issues are more likely to occur when a transaction is not completed in person.”

Step one is to ask for a refund from the merchant. If that fails, step two is to ask your credit card issuer for a chargeback. Before this year, about 25 million credit card transactions were disputed annually. Mercator Advisory Group predicts this number will spike to 33 million by 2022.

See related: Filing credit card disputes in the coronavirus crisis

What is a chargeback?

A chargeback is a refund prompted by your card issuer. If you paid for a product or service with a credit card, you can dispute it through the card issuer and let them take the battle to the merchant. If the issuer succeeds where you failed, the purchase price is refunded to the credit card you charged it on.

When to request a chargeback

Assuming you first try to resolve the problem by going directly to the merchant, the following are all relevant reasons for chargebacks:

  • You didn’t receive an item ordered
  • You feel a product or service is substandard or not how it was represented
  • You were incorrectly billed
  • You don’t recognize a charge on your credit card statement.

Your rights regarding unfair charges are outlined in the federal Truth in Lending Act. Follow the guidelines outlined there and the dispute process can work in your favor.

There are two categories of disputes: billing errors and “claims and defenses.” Your rights are different under each. Most complaints can be settled using the process for billing errors. Disputes under claims and defenses have to do with quality issues, and that’s a bit trickier to prove – but not impossible.

How to do a chargeback

  • Request a refund directly from the merchant first. Your credit card issuer will require proof you did this before it considers disputing a charge. It will also examine the terms you signed off on when you made the purchase, so you should too. Pull up the email receipt from your purchase and review it carefully.
  • Save emails, receipts or screenshots from the merchant you purchased from to prove you didn’t get your money’s worth.
  • If you get a refusal or no response from the merchant, file a dispute with your card issuer. You can do that by calling the customer service number on the back of your credit card or logging in to your account online and filling out a dispute form.

Know your rights

It’s not just products that don’t always pan out, it’s services and events we pay for in advance – like concerts, sports events or travel plans.

When flights were canceled this spring, many travelers found themselves struggling to get refunds, even though the Department of Transportation states: “If your flight is canceled and you choose to cancel your trip as a result, you are entitled to a refund for the unused transportation – even for non-refundable tickets.”

The DOT also says the airline may offer a voucher for future travel instead of a refund. But there are cases, such as a pandemic, where that may not do you much good.

Jeannette Moninger booked a flight in March for her son to return to college, only to be told his campus was shut down.

“Frontier, at the time I booked, promised you could rebook without charge,” Moninger says. “But they canceled all flights in April and only a few were available in May and June.”

Frontier offered her flight credit for a year, which she didn’t want. So she turned to the Southwest Rapid Rewards credit card she used to book her flight and disputed the charge online.

“They removed the charge with the caveat that Frontier could dispute my dispute, but they never did,” Moninger says.

When Ellen Sheng’s United flight was canceled this spring and she could not get a response from the airline, she filed a dispute online via the American Express card she used to book the flight.

“United didn’t respond to my dispute within the time period allowed, so the case is closed, and I got the charge reversed on my card,” she says.

See related: Trip canceled? Your credit card may reimburse you

Act quickly

It helped that Sheng filed her dispute promptly.

“We encourage card members to contact American Express as soon as possible to dispute a transaction,” says Ramesh Devaraj, vice president of global merchant processing and policy at American Express. “They should keep evidence of the purchase, such as receipts, to help us quickly investigate the claim.”

You have 60 days to dispute a charge, but your chances of a positive resolution are better if you file your dispute sooner, says Ruth Susswein, deputy director, national priorities at Consumer Action.

“Ideally, you should get a billing dispute to the card issuer within 30 days,” Susswein says. The issuer then has 90 days (two billing cycles) to respond.

“We don’t place any time constraints on a customer’s ability to initiate a dispute, but disputes made closer to the original transaction date are more likely to result in successful outcomes,” says Jennifer Delgado, spokesperson for Discover. “Timelines vary depending on the situation, but merchant obligations within the disputes process become more limited 120 days after the purchase.”

If you normally pay your credit card bills in full, remember not to pay the disputed charge. But make sure you pay at least the minimum on time.

Gather evidence of quality issues

Billing issues are pretty straightforward. If there’s an extra zero added to your bill, that’s easy to prove.

“The hardest chargebacks to resolve in our favor are ones having to do with quality issues, the category under claims and defenses,” Susswein says. “That’s when you get something that’s not as described, or the product was broken and the merchant doesn’t want to replace it or give your money back.”

To make a case for a chargeback under claims and defenses, the purchase has to be more than $50 and made within 100 miles of your home, and you have to have not paid the bill yet.

How can you claim a chargeback in this case?

“Let’s say an item arrives broken, you ask for your money back and the merchant says no way,” Susswein says. “As soon as the charge posts to your account, write to your credit card issuer that you’re taking a chargeback under claims and defenses and explain the problem.”

Include any proof you have: a picture of the item as it was delivered and a screenshot of the web page you ordered from that proves the product shown and described bears no resemblance to the item you received.

If all else fails, report the problem

If a dispute with your credit card issuer hasn’t been resolved fairly quickly, Susswein recommends filing a complaint with the Consumer Financial Protection Bureau, which is the federal watchdog for big banks. Companies want to avoid too many marks against them there.

“This part of the process helps to hold companies accountable,” she says. “It doesn’t work all the time, but it’s an excellent tool.”

If it’s a purchase you made locally, you can also send a complaint to your state attorney general. Your state government’s website likely has a complaint form you can fill out and may have an office to handle such complaints.

“I would send a complaint to my state AG at the same time I file it with the CFPB,” Susswein said. “Just copy and paste. Because credit card issuers are national, they fall under national rules, so focus on the CFPB.”

See related: CFPB complaints reveal some issuers not delivering on COVID relief

Note changes to the chargeback process

Visa and Mastercard are constantly updating their chargeback processes. A few years ago, Visa streamlined the process with the introduction of Visa Claims Resolution (VCR). Among other things, merchants are now required to respond to a dispute within 30 days instead of 45.

Visa also committed to handling its part of the process faster.

Bottom line

Susswein noted that companies are “trying to hang onto every penny they can” in order to survive the coronavirus pandemic, so it’s important for consumers to be persistent.

“In some cases, they may not be as concerned about the outcome of a particular consumer, so we have to advocate for ourselves,” she said.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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