You purchase a product, but it doesn’t work or you don’t even get it. So you open a chargeback. How are banks able to just claw back the money you’ve sent?
In: Economics
If the seller still has their merchant account open with their bank, it goes through a chargeback process that ultimately deducts that amount from their future sales if they do not successfully challenge the chargeback.
Merchant accounts are a type of credit; if the seller is no longer in business, then the amount is recovered from the bank that issued the merchant account.
Sorry, ELI5: Your credit card company takes the money from the seller’s bank. If the seller is still in business, their bank will subtract it from their future sales.
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The vendor gets money for card purchases at regular intervals, along with a statement document specifying each purchase and the fees involved. Daily, weekly, biweekly or monthly depending on volume, card type and desired fee for each purchase. All regulated in their contract.
What happens if you do a chargeback is that the income they already have received (or was scheduled to receive) for your purchase is subtracted (or cancelled) from income the vendor is expecting to receive on their next statement.
Basically, the retailers have an agreement with the card companies. Part of that agreement includes what happens if a charge is disputed. It gives the card company the right to withdraw money out of the account the funds were deposited into in the event of a dispute. So, when you dispute a charge, you are literally asking the credit card company to withdraw funds from another person’s account and deposit those funds back into yours.
Obviously, there are more legal and financial details that I have glossed over, but that is the basics.
Please be aware that a chargeback or billing dispute is not a magical “I want a refund” button. There needs to have been some issue with the billing that is documented or documentable in order for it to work,
Did you cancel your subscription and they’re still billing you? (Going to need proof that you cancelled or a date at least. Always keep those cancellation emails kids and don’t think you’ve cancelled successfully until you have one )
Did you not get the item? (If it’s trackabke and the post office / UPS swears it was delivered you’re screwed)
Did you get billed twice?
Billed too much / not enough? (Have your receipt ready, if you tossed it you’re screwed)
I know some of yall are going to give me stories of the ‘one time you did it like this and somehow got it approved / rejected still’ and that’s because sometimes the banks mess up and don’t file your disputes properly or just give you your money back from the bank’s funds without ever reaching out to the merchant.
Last thing to note: Bank definition of Fraud is someone else went around spending your money without your knowledge.
You gave the website / business your card info= Billing Dispute
You didn’t = Fraud (you probably still did tho)
All the banks are looking on fraud claims is whether or not it was you who did it. When they track down the fraud claim charges for John Smith back and see that they were done on John Smith’s phone, or the phone that John Smith put his card info for a legit purchase 6 months ago (friends or family member) then it’s not fraud and you loose the claim, you replaced your card for nothing and now some businesses won’t do business with you / shut down the account (Amazon, Apple, Google, and Walmart are some examples) because you filed fraud when it was your cousin or friend accidentally getting the cards mixed up or not having money in their accounts so the site (rightfully so btw) go down the list of previously stored card data to collect their money
Adding to what others have said – chargebacks should be used as a last resort. Always try to get refunded, solve the issue, etc. with the merchant directly first. If you do too many chargebacks, the credit card company may cancel your card, since chargebacks are expensive to investigate and administer.
I feel compelled to chime in. I own a small business and chargebacks suck for me as the vendor.
So: when a customer files a chargeback, the money is immediately removed from the sellers account with their credit card processor, plus a possible fee (depending on the terms you have with your bank. I get a $15 fee just for having a dispute, whether I win or lose it).
The customer also has to give a reason. Basically WHY this is being disputed. The most common reason is “fraud”, and then stuff like “product unacceptable” or “Credit pending” (where the vendor didn’t issue a refund that the customer felt they were owed).
But the chargeback is actually a dispute. I get to dispute the chargeback as a small business/ the vendor. I will literally pull camera footage, signed documents by the customer and even a picture of their social media confirming that the person who came and had services rendered was in fact the card holder (if fraud was the reason).
In my case I take it pretty personally and almost anyone that files a chargeback has been either fraud or friendly fraud since I’m really customer service oriented.
After I upload all my supporting documents to my bank, they then forward it to the customers bank. This part takes FOREVER, it can easily take up to 60-90 days. The customers bank doesn’t have any motivation to process disputes at a speedy rate (their customer already has their money back in their account after all).
Sometimes the customers bank sides with the customer, sometimes they side with me (the vendor). If it’s an American Express card, there’s almost no sense in wasting any effort trying to dispute it through the chargeback system, as they almost always side with the customer.
If the dispute is decided in my favor, I get the money deposited back into my account. If not, then I’m out the cost of the services rendered AND that $15 fee.
Side note: the banks don’t provide me any additional information when it comes to the dispute. I have no way of knowing what the name of the card holder is for sure from the dispute. For that reason we started to physically verify ownership of the credit card for customers that come in. We even have a lower-resolution camera with a large SD card pointing right at the counter to capture the fact that we check the card and the customers face, just for the sake of charge backs.
Most Vendors don’t bother putting in any effort into contesting a chargeback. Most places are so big that they don’t care since it’s not their money. Not me. It’s literally my money since I’m an owner/operator, and it’s literally taking money from my account I use to pay rent and feed my family.
When we get a chargeback it is deducted straight from our merchant account. Then we have 21 days to appeal it. I’ve won every appeal I’ve done. (5 in 6 years). We have contracts with our customers so once I send in the contract and the signed delivery receipts we get the money back.
My wife works for a credit card company, and is experienced on this process. When you report a fraud or request a charge back you will usually be credited the amount requested, and the vendor will be debited.
in some cases investigations will be initiated, and it is up to the vendor to prove the transaction is legitimate. The most common one usually occurs with tips added to transactions (bars and restaurant), and the CC company will request a copy of the receipt, but in most cases the vendor accepts the charge and they take the hit. At some point the CC companies will send a warning to the Vendor via the VISA or MC network with a threat of loss to the VISA network if the charge back/fraud reports hit a certain %.
Pro tip: if you are at a tourist destination or far away from home take a picture of the receipt with the tip added that can be provided to the CC company in case of a dispute.
On the merchant side, there is an opportunity for the merchant to dispute the chargeback. But I would guess most large companies don’t bother – they probably budget for a certain amount of chargebacks.
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