What is a credit card chargeback, and how does it work?

Consumers who pay for the bulk of their purchases with plastic can gain peace of mind knowing they can request a chargeback if they’re unhappy with a charge.

Credit card chargebacks make it possible for shoppers to get a refund in various circumstances, including billing errors and charges for goods and services that weren’t delivered as agreed.

But, what exactly is a credit card chargeback? And when should you request one? These are common questions consumers have any time they face a credit card charge that’s unauthorized or wrong in some way.

Also note that cardholders must take certain steps before they request a chargeback through their card issuer. Read on to learn everything you need to know about credit card chargebacks, as well as how and when to request one.

What is a chargeback?

A chargeback is a refund prompted by your card issuer after you’ve taken steps to ask them to research a charge.

Here’s how chargebacks work: If you paid for a product or service with a credit card and you’re unhappy with the resulting charge, you can dispute it through the card issuer and let them take the battle to the merchant. If the issuer succeeds where you failed, the purchase price is refunded to the credit card you charged it on.

Note that chargebacks only apply to “open end” accounts like credit cards and even store cards. In other words, you can’t file a chargeback on other types of credit you have, such as installment loans or personal loans.

When to request a chargeback

Assuming you first try to resolve the problem by going directly to the merchant, the following situations warrant requesting a chargeback from your credit card issuer:

• You didn’t receive an item ordered.
• You feel a product or service is substandard or not how it was represented.
• You were incorrectly billed.
• A charge is billed in the wrong amount.
• A charge you don’t recognize shows up on your billing statement.

Your rights regarding unfair charges are outlined in the federal Truth in Lending Act. Follow the guidelines detailed there and the dispute process can work in your favor.

Also be aware that there are two categories of disputes: billing errors and “claims and defenses.” Your rights are different under each. Most complaints can be settled using the process for billing errors. Disputes under claims and defenses have to do with quality issues, and that’s a bit trickier to prove — but not impossible.

How to do a chargeback

There are a few important steps to keep in mind if you’re unhappy with a charge that shows up on your credit card account. By following these steps, you can increase your chances of receiving a chargeback and getting all or part of your money back:

• Step 1: Request a refund directly from the merchant first. Your credit card issuer will require proof you did this before it considers disputing a charge. It will also examine the terms you signed off on when you made the purchase, so you should, too. With that in mind, you should review the email receipt from your purchase before you move on to the next steps.
• Step 2: Keep records relating to the purchase. If a merchant will not refund the purchase you’re disputing on their own accord, you’ll have to begin building your case for a refund. Save emails, receipts or screenshots from the merchant you purchased from to prove you didn’t get your money’s worth.
• Step 3: Contact your card issuer. If you get a refusal or no response from the merchant, file a dispute with your card issuer. You can do that by calling the customer service number on the back of your credit card or by logging in to your account online and filling out a dispute form.

How does a credit card chargeback work?

According to the Federal Trade Commission (FTC), you are legally entitled to withhold payment on the disputed charge (or disputed amount) while your credit card issuer looks into the charge. In most cases, though, your card issuer will take care of this part for you by posting a temporary credit on your account while the chargeback request is being reviewed.

In the meantime, the creditor is not legally allowed to take any action to collect on the debt or the disputed amount. They are also not allowed to threaten your credit rating, or to report you as late or delinquent on any payments. The creditor in question can report that you are challenging their bill, the FTC notes.

If your bill is ultimately found to be a mistake, the creditor is legally required to explain to you in writing the corrections being made. You are legally entitled to a credit on your account in the full amount of the approved dispute, and all finance charges, late fees and other fees in error must be removed.

In some cases, though, your credit card issuer will not rule on a chargeback in your favor, or they may only rule partially in your favor. In this case, you will owe the amount charged to your account, and any credit added to your account during the investigation will be removed. If it’s found that you owe a portion of the disputed amount, your creditor is legally required to inform you of this change, along with offering an explanation of the partial credit.

You do have the right to dispute a chargeback that is not found in your favor, but you only have 10 days to do so after receiving an explanation of the ruling in writing. Your creditor can still try to collect the debt, and they can send any amounts you do not pay to collections. However, they are legally required to report that you do not believe you owe the amount in question. From there, your creditor is also required to tell you who receives these reports.

“The creditor also must promptly report any subsequent resolution of the reported delinquency, to everyone who got a report,” notes the FTC.

If they fail to follow these procedures, then your creditor loses the right to collect the disputed amount (up to $50).

Bottom line

There are plenty of situations where requesting a chargeback on your credit card makes sense, including those where you are accidentally charged for the same purchase twice, or a company bills you for a product or service you canceled. You can also request a chargeback if a product or service wasn’t delivered based on agreed upon terms, or if you discover a purchase you didn’t even make on your credit card bill.

Ultimately, the ability to file a chargeback is one of the best benefits of using a credit card over other payment methods. If you decide to pay in cash instead and you’re unhappy with a purchase, you’ll almost certainly be out of luck.

Requesting a chargeback through your credit card issuer gives you the chance to let someone else handle your dispute, and you will likely get your money back if your instincts on the charge are right.