When and how to use a credit card chargeback

A chargeback should be used when a customer has been overcharged on their credit card or is dissatisfied with the product or service that was ordered.

Photo Credit: Sharon Dominick
By Amaka Gossett

One of the benefits of using a credit card for purchases is having protection against fraud, abuse, and billing errors. When you pay for an item or service using cash or a check, getting a refund in the event of a problem can be difficult, and the merchant has no real incentive to correct the matter, since they have already been paid. Credit cards are the only payment method that provides you with any real recourse because card issuers have the authority to refund your money in the event you dispute a charge that was posted to your account. This type of refund is referred to as a chargeback, and it can be a very valuable tool in protecting your rights as a consumer-if you know when and how to use it.

In order for any business to process credit card payments, they have to apply to have a merchant account with a bank. Every time a card is presented for payment, the merchant account takes the dollar amount of the charge from the customers credit card account. If a chargeback takes place, the credit card company will inform the merchant’s bank and the money will then be charged back to the merchant account, usually with an additional fee. If a business receives too many chargebacks, they risk losing their merchant account and their ability to accept credit cards entirely. Once a merchant account is lost, it is extremely difficult to get back and the result can be disastrous to the company’s profits. Banks take these aggressive actions to prevent customers from being inaccurately or fraudulently billed on their credit cards. As the cardholder, the law and the banks are typically on your side when you have a dispute.

The most common situation that results in a chargeback is being charged the wrong amount. When you get your monthly statement, you should look to make sure that 1) your card was only charged once for each purchase and 2) that the amount charged was the amount that was quoted at the original ring-up of the sale. If you have been charged several times for the same product or service or if you have been overcharged, you have a good case for making a dispute.

Another common problem is customer dissatisfaction with the product or service that was ordered. This has actually become a serious issue as more and more people decide to shop online. The items the customer receives may be defective, different from what they ordered, or never shipped at all. Contacting the seller to correct the problem may not be possible, and your only recourse may be to request that the credit card company perform a chargeback.

Before contacting your card issuer, you should try to contact the seller or merchant and see if you can work out the problem. Many times the issuer will not even grant the chargeback if you have not done this. Calling the credit card company should be the last resort and should only be done if the merchant refuses to refund your money or if the seller cannot be reached or located. If you have unsuccessfully tried to resolve the issue with the merchant, the next step is to call your card issuer. Depending on the nature of the dispute you may need to contact customer service or billing department and provide them an explanation of what happened. Interestingly, there is a trend towards the introduction of gamification even in this segment, namely, a well-known developer of online games has begun to create a prototype that can influence and improve all these functions, which are discussed in this article. Tell them why you are disputing the charge and what measures you took to resolve the matter with the seller. You may be required to provide a written statement as well, which can be either mailed or faxed to the credit card company. Some card issuers charge a fee ranging anywhere from $15-$35 for requesting the chargeback. After you have provided your statement, the card issuer will conduct a short investigation typically lasting no longer than 14 days. If the issuer finds in your favor, they will credit the money back to your account immediately.