Are You Eligible for a Chargeback?
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Rights That You Didn't Know You Had
Many years ago, the dominant payment method was cash. It is natural, but also in the interest of many that a transformation toward paying with digital instruments is happening, and to support that transformation dispute rules exist on card transactions, to ensure high trust and security into that payment method.
A chargeback is the reversal of a transaction made on your credit or debit card. In order to better protect consumers and merchants, credit and debit card transactions are highly controlled and regulated by the card companies. The four major credit card providers; American Express, Discover (which owns Diners Club), Mastercard and Visa include a set of terms and conditions that control the use of their cards. These terms and conditions determine the rights and responsibilities of the cardholder, their bank, the merchant and the merchant’s bank.
A consumer who has lost their card or had their card stolen, can notify their bank and have any unauthorized charges reversed. The reversal of an unauthorized charge is as a result of fraud. Additionally, a cardholder is able to have an authorized charge reversed if the goods and services they paid for were damaged, defective, not as advertised or not received. The process of reversing an authorized transaction is known as a chargeback.
There’s no second chance to raise a chargeback. Not only are the rules complex, but the language is unfamiliar. For example, “fraud” only refers to unauthorized transactions. So if a consumer was purposely cheated by a merchant, and they say “fraud” when requesting a chargeback, all the merchant needs to do is prove the transaction was authorized and the chargeback is denied.
The problem is that merchants bring in professionals to guide their disputes, of which they may have hundreds. Issuing banks are increasingly outsourcing their dispute resolution to external experts also.
But the consumer is not a chargeback expert. And this dispute may be the first and only time they ever deal with these complex rules and scenarios. Who’s looking out for their interests? Why aren’t they being advised to seek professional guidance? It’s an inherently unfair situation.
The credit card chargeback process can be summarized as follows:
Common Chargeback Dispute Rules and Codes
- Visa Reason Code: 13.1
- Mastercard Reason Code: 4853
This rule applies to card holders who claim they never received the goods or services they purchased with the credit or debit card. The implication in this instance is that the merchant failed to deliver the merchandise or services as per the agreed upon terms and conditions of the sale.
- Visa Reason Code: 13.1
- Mastercard Reason Code: 4853
This rule applies to card holders who claim they never received the goods or services they purchased with the credit or debit card. The implication in this instance is that the merchant failed to deliver the merchandise or services as per the agreed upon terms and conditions of the sale.
If you see a transaction on your account, you can’t recognize if it is worth investigating if it could be yours or somebody else in the household that has used your card, and you just can’t identify the merchant by looking at the merchant name on your account statement. If you are sure that neither you or anyone from your household has authorized the transaction, it must have been fraud. An unauthorized card transaction is a fraudulent act that takes place when a criminal obtains access to another individual’s credit or debit card. In certain instances, this can also include gaining access to the individual’s personal identification number. The criminal then withdraws funds or makes unauthorized purchases from the victim’s account.
If an individual’s debit or credit card is used fraudulently, the amount spent will reflect on the victim’s credit card statement or bank account. If the card companies are notified timeously, the money will be reimbursed, although it may take some time to be rectified.
If you see a transaction you do not recognize on your account, block your card and report it to your bank immediately.
An authorized transaction involves the cardholder of a credit or debit card and a number of additional participants that work in tandem to complete an electronic transaction. The merchant in this instance has received consent from the bank that issued the consumer’s payment card.
A chargeback, or a reversal of an authorized transaction is possible when:
Good received are not as described | If the goods received do not align with what was advertised or expected, then a consumer has a right to request a chargeback if the merchant refuses to refund the consumer.
The goods are not received | If goods are purchased and don’t reach their final destination, the consumer can raise a chargeback against the merchant if he fails to reimburse the consumer or deliver on their promises.
The goods are damaged or defective | If the goods arrive and are either damaged or defective, then the consumer has the right to raise a dispute with the merchant provided that evidence can be presented to support the claims. If the merchant fails to respond or address the issue, then the consumer has the right to issue a chargeback for the defective goods.
Timelines and Important Deadlines
It is important for consumers to familiarize themselves with the various deadlines involved with the chargeback process as failure to meet certain deadlines may result in a denied chargeback before the process has even begun. The time allowed for a consumer to file a chargeback generally depends on the card company involved and their terms and conditions.
Cardholders should typically advise their bank as soon as they have tried to solve the dispute with the merchant, without success. If the merchant has promised you a refund, you should dispute it if you haven’t received the refund 14 days after. Consumers in Nordic countries; Denmark, Finland, Iceland, Norway and Sweden should notify their bank as fast as possible, but according to the ombudsman they should contact their bank within 13 month from the transaction date, or the date that the service should have been delivered in order to maximize their chances of a successful chargeback. Cases can however extend up to 540 days with certain card companies, however, chances of success diminish significantly as time ticks on. The key for a successful chargeback is to file your request as soon as possible.
Following this, the merchant typically has between 30 and 45 days in which to respond to a chargeback, depending on the card company. If the merchant ignores the chargeback that was issued and fails to provide supporting documentation in defense of their case, the chargeback will automatically be awarded to the consumer.
Contact the Merchant and try to Resolve the Dispute
Before embarking on a chargeback, an important requirement to keep in mind is that the card companies require that consumers first make contact with the merchant to try to resolve the issue directly.
If you have tried to resolve the dispute directly with the merchant and they either ignore your request or refuse to issue a chargeback after a reasonable period of time, generally 7 days, you can proceed with filing a chargeback.
In the long run however, direct negotiations between consumers and merchants help all parties involved and avoids unnecessary chargebacks and backlogs.
Evidence for your Correspondence with the Merchant
As previously mentioned, it is important for the consumer to engage in direct negotiations with the merchant before proceeding with a chargeback request through the banks and the credit card companies. This initial attempt must be documented and included in the chargeback request if the merchant refuses to settle with the consumer.
Expectations
As soon as the issuing bank confirms the authenticity and validity of a dispute, the consumer is entitled to a full refund while the issuing bank advises the Merchant and the process moves ahead. This is referred to as a temporary credit. The money is deposited into the consumer’s account from the issuing bank which will in turn claim it from the payment service provider.
If a temporary credit was awarded and the merchant successfully challenges the chargeback dispute, the money will be withdrawn from the consumer’s account and returned to the issuing bank.
Representment refers to the submission of evidence by a merchant to confirm that a transaction was correctly executed and that the consumer’s claims for a chargeback are either invalid or untrue. Generally speaking, a representment is the opportunity for the merchant to defend a genuine transaction and recover any income lost as a result of an unsubstantiated chargeback.
If for example, a cardholder states that goods purchased were not received, the merchant can represent by providing tracking information or a signature that proves the goods were received. Likewise, if a card holder states that the goods received were damaged or defective, the merchant can represent by showing the product in good standing before it was shipped.
Every time a card holder issues a chargeback, the merchant has the opportunity to refute the claim and represent the claims made against him.
It is important to remember that the onus of proof is always on the card holder.
If the banks decline to assist their clients with a chargeback, there are a number of professional fund recovery companies that specialize in chargeback and card-not-present disputes that could be consulted.
If the bank decline to raise a chargeback, there are different options to complain:
- Tell your bank that you are going to complain to either their complaint department or their legal department. Ask them for guidance on who to complain to. And-/or
- Contact the The Financial Complaint Board. And/or
- Contact the ombudsman
COVID-19 Related Disputes
A sharp increase in chargeback related claims has been observed following the coronavirus outbreak at the end of 2019. This spike is overwhelming banks that are already inundated with the regular influx of chargeback cases in addition to other financial matters.
The increase in chargeback activity can be attributed to a number of intersecting factors. As a result of the ongoing lockdowns, consumers are forced to shift from the traditional way of shopping in store to online. Similarly, businesses are navigating difficult supply-chain disruptions, delivery instability and delays in addition to shortages in the labor force. Inevitably, the increase in online purchases combined with a reduced capacity to manage the surge in transactions, leads to problems surrounding logistics and delivery and ultimately an increased number of chargeback requests.
Bear in mind, it’s easier for consumers to issue a chargeback for products purchased online compared to in-store purchases. Consequently, the credit card industry has seen a notable rise in chargebacks since online shopping became a popular way to purchase goods, and even more so since the outbreak of the pandemic.
One notable example is the airline industry. Thousands of flights around the world have been cancelled and/or rescheduled as a result of the coronavirus outbreak. In Canada, for example, thousands of flights were cancelled leaving countless Canadians with very limited options to recover their money.
According to a number of sources, many consumers were unsatisfied with the offer for credits for future travel. This resulted in many consumers to seek refunds through their credit card company.
The influx of requests were met with many challenges, with a number of VISA and Mastercard holders stating that they were met with resistance to filing a dispute. In many cases, customers were advised that by opening a dispute, they would risk losing out on the credits awarded by the airlines.
Customers were also advised regarding certain policies that excluded cases where a travel credit was offered, or were persuaded to accept instead of filing a dispute. Then there were other consumers that were advised that disputes relating to the pandemic would not be entertained at all.
In order to mitigate losses, certain airlines agreed to issue travel vouchers to consumers for whom they were unable to provide services for. Many consumers are understandably unhappy with this arrangement. For example, what if the voucher was for a specific event that has already occurred and is now a distant memory? A voucher will help get you to the destination you originally intended, but it won’t get you there at the required date and time you originally required and can therefore be rendered useless.
Another problem identified with travel vouchers is that they come with many terms and conditions. One particular condition is that a travel voucher is issued with an expiration date. Airlines, for a number of reasons, cannot allow vouchers to be used indefinitely and therefore need to place a cap on their validity. This forces consumers to travel within the airlines’ required timeframes with no regard to the individual’s schedules and constraints. This will undoubtedly not suit all consumers as each has limited availability to travel or take a holiday.
Lastly, a voucher includes the amount equal to the original price of the flight. Due to a number of factors; changes in demand, inflation, the price of fuel etc, the cost of a ticket a year or more down the line will be significantly more than the original price, forcing consumers to spend more on a flight that they may not even require.
Consumers, by law and by the terms and conditions outlined by the credit companies are within their rights to receive a full refund for any goods and services that are not fulfilled by a particular supplier including cancelled flights, whatever the reason.
Finally, sometimes it is a mystery who to approach for the chargeback – the airline or the third party ticket issuer, and often it results in miscommunication, and instruction that sends the cardholder back and forth between the two parties.
