Consumer Rights

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

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

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. 

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