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
Something nobody has mentioned yet: there is a Federal law that provides consumer protections for credit card transactions. Specifically, you’d want to look at the Truth in Lending Act and its implementing regulation, CFPB Regulation Z. The protections are complicated, but they establish a right for consumers/cardholders to dispute unauthorized charges and billing errors, to sue the card issuer (under certain circumstances) if the merchant won’t resolve an issue, and to get a resolution to their claim within specific time frames.
For those who are curious, take a look at
12 CFR 1026.12 (https://www.consumerfinance.gov/rules-policy/regulations/1026/12/)
and
12 CFR 1026.13 (https://www.consumerfinance.gov/rules-policy/regulations/1026/13/)
Oddly, nobody has mentioned the reserve. Many merchants, especially high risk merchants, will have a reserve of about 5-10% (or more if a business is notably sketchy) of their transactions that the bank holds in reserve, sometimes for fairly long periods like 6-12 months. That way even if the merchant stops doing business entirely, there’s a pool of funds that chargebacks can be debited from as complaints roll in.
Two ways:
One: banks don’t transfer money instantly. They do it “at the end of the month” in one big tally.
Two: all the banks and merchants have a bro code to undo problems when they are discovered.
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