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What Is a Chargeback?

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  • Written By: Natalie M. Smith
  • Edited By: E. E. Hubbard
  • Last Modified Date: 28 September 2016
  • Copyright Protected:
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Consumers sometimes dispute charges on their debit or credit card accounts posted by merchants or suppliers. If an investigation reveals that the charges were unwarranted, suppliers must provide a refund. Any refund or charge reversal, as well as applicable fees, resulting from such a dispute is known as a chargeback. They serve as a protection policy for the consumer in general, though many suppliers have begun to account for these potential fees in the prices of the products sold.

After a consumer makes a purchase using a debit or credit card, the supplier charges the card. The consumer might dispute this charge for many reasons, such as being charged multiple times for a single purchase or being charged for an undelivered or damaged product. A consumer often lodges this dispute with the card company, not the supplier. The card company will usually then launch a dispute resolution process — though there are some restrictions for certain situations, cards, and companies. If, during a dispute resolution process, the supplier is unable to prove that the charge was warranted, then the card company works to reverse the charge with a supplier chargeback.

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There are two primary characteristics that make chargebacks different from regular refunds. First, chargebacks refund debit, credit, or similar accounts only, not other forms of payment. Second, chargebacks typically require more than repaying the consumer for an unwarranted charge. Suppliers who must issue chargebacks are often assessed a financial penalty by the card company that launches the dispute resolution process.

Chargebacks are a form of consumer protection. In the United States, the Fair Credit and Billing Act enforces the right of consumers to dispute certain unauthorized charges, including those that can result in a chargeback. Still, a consumer or scam artist might misuse this protection by demanding a chargeback even when the supplier's charge is legitimate. Suppliers do have ways to protect themselves from unwarranted chargeback requests and chargeback fraud.

To offset potential chargeback fees, suppliers can factor these fees into the price of their products. Providing professional conflict resolution services might also prevent consumers from disputing charges with their card companies. Keeping record of all sales transactions, especially documents that prove that suppliers deliver their goods and services in a timely manner in accordance with their stated policies and charge consumers the appropriate amount, is the supplier's best defense during a dispute resolution process with a card company. Debit and credit card companies often offer many more tips to help both suppliers and consumers to avoid or demand chargebacks as necessary, and prevent fraudulent charges and chargeback activity.

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