When to File—and When NOT to File—a Credit Card Chargeback
Picture this: you made an online purchase with your credit card. You’ve been waiting forever for the items to arrive, but when you contact the seller, they tell you that the item was shipped, and delivery is now out of their hands. There’s no sign that your goods will be showing up any time soon.
You’re angry. And so, you decide to contact your bank to see if they can help.
In this situation, are you entitled to a credit card chargeback? What happens when you dispute a transaction? The answers to these questions are more complicated than you think.
In this article, we’ll rundown the most important points you should know about the credit card chargeback process. We’ll explain when it’s okay to file chargebacks, when it’s not okay, and look at what can happen if the chargeback process gets used for the wrong reason.
Recommended reading
- 3 Types of Payment Reversals: What’s the Difference?
- Provisional Credits: Here’s Everything You Need to Know.
- Here are the 5 Valid Reasons to Dispute a Charge
- 14 Chargeback Facts Exposing the Threat of Fraud in 2024
- How are Partial Chargeback Different From Other Disputes?
- Late Presentment: Why You MUST Submit Transactions on Time
What is a Credit Card Chargeback?
- Credit Card Chargeback
A credit card chargeback is a bank-initiated payment reversal for a credit card purchase. Rather than request a refund from the merchant who facilitated the purchase, cardholders can dispute a particular transaction by contacting their bank and requesting a chargeback.
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The chargeback process has been around for decades. As credit cards started gaining popularity, government officials saw a need for cardholders to retrieve money lost to fraudsters, identity thieves, and other unauthorized purchasers. Chargebacks gave cardholders some recourse in the event of fraud. They also also incentivize merchants to stick to fair, above-board practices.
When used correctly, credit card chargebacks are a critical layer of protection for consumers. Unfortunately, many consumers don’t use the process correctly.
Card networks have overcorrected for fraud threats. At the same time, they’ve also failed to account for the impact that innovations like eCommerce, mobile shopping, and in-store pickup would have on chargebacks. As a result, it’s surprisingly easy to file credit card chargebacks without a valid reason to do so.
5 Most Common Reasons to File Credit Card Chargebacks
There are two basic reasons to file a credit card chargeback: criminal fraud, or merchant abuse. Banks might issue chargebacks for more complicated, authorization-related problems, but those are the two reasons you need to know as a cardholder.
For example, let’s say you want to return something you bought. The seller fails to share their contact information or to acknowledge your requests, though, making it impossible to get a conventional refund. This could be a deliberate move on the merchant's part, or it may simply be bad customer service. In either case, a chargeback might be the only option available.
For another example, imagine that a hacker gained access to your personal information. They use it to make purchases in your name. The merchant targeted by the scam fails to conduct enough due diligence, and they end up allowing the purchases to go forward. In that case, you could be entitled to a chargeback.
It’s appropriate to file a credit card chargeback if:
01 | A transaction on your statement was fraudulent
If you don’t recognize a purchase made on your credit card statement, and no one in your household initiated the transaction, then you might have been a victim of fraud.
What to do:
First, check with the merchant listed on your statement to see when and where the purchase was made. See if the merchant will refund the purchase before requesting a chargeback. Next, contact your bank or card provider to inform them of the situation, and to either freeze or cancel your card. Your liability for credit card fraud is limited by law to no more than $50 if reported within 60 days.
02 |An item you ordered was never delivered
This is applicable in situations where you’ve contacted the merchant several times, but they are unable or willing to provide you with a tracking number or any other proof of shipping. Items with a tracking number in transit are not eligible for a chargeback (more on this below).
What to do:
Keep a complete record of any conversations you’ve had with the seller. This includes transcripts of online chats, text messages, emails, or screenshots of text messages. If you communicate with the merchant via telephone, consider recording the call. It may come in handy later if the merchant disputes the chargeback.
03 |An item was damaged on arrival
This can also be tricky because the merchant may not be responsible for the damage. Sometimes packages are damaged in transit due to environmental hazards. Other damage incurred by the delivery agency could happen. You’re not liable for items that have missing parts or are visibly damaged on arrival, but you should still try to work out the issue with the seller before demanding a chargeback. Another important distinction is that if the packaging is damaged, but the item inside is not, then you are not entitled to a chargeback.
What to do:
Take several photographs of the damaged product, from the packaging to the areas of concern. Next, take screenshots of the item listed online, including any specifications or descriptions that indicate the item arrived in a separate state from its advertised condition. Then, see if you can work out the issue with the merchant. If not, then go ahead and contact the bank.
04 |Incorrect transaction amount
This applies if you were charged for more than the price you agreed to pay during checkout. For example, you may be entitled to a chargeback if you bought a t-shirt that was 50% off, but were then charged full price.
What to do:
Again, take screenshots of any conversations you had with the seller regarding the purchase. The screenshots should display the item’s listed price, versus what you paid. Contact the seller and ask them to refund you the amount in question. If they refuse, you can then contact the bank for a credit card chargeback.
05 | Charged for canceled subscription
Another legitimate reason to file a chargeback is for previously canceled subscription charges. This may happen if you try to cancel a subscription, but the merchant continues to charge your card as if you never canceled.
What to do:
If this happens, you should reach out to the merchant. There may have been some terms or conditions at the time of signup that you missed. If that’s the case, you might still be bound to your subscription for the duration of the contract. If not, though, you should explain to the seller that you want to cancel your subscription. If the seller ignores you, then you may file a credit card chargeback.
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Remember: chargebacks are meant to balance the scales between cardholders and merchants. They’re meant to be used as a last resort, once you’ve exhausted all other options to get your money back. A chargeback should not be your first course of action.
So, with that in mind, let’s discuss a few situations in which a credit card chargeback would not be the right response.
5 INVALID Reasons for a Credit Card
Chargebacks
We want to clarify this up front: not all illegitimate credit card chargebacks happen on purpose. In fact, most happen by accident.
Invalid chargebacks often happen because of innocent mistakes or misunderstandings on the cardholder’s part. To illustrate, here are five common situations in which a chargeback would not be the right response:
01 | A chargeback might be more convenient
Few people relish dealing with a business’s customer service department. If filing a chargeback seems quicker and more accessible, it might be tempting to try it out. In reality, though, merchants will typically want to retain your business and loyalty by doing all they can to resolve the issue quickly and to your satisfaction. The chargeback process can take weeks, or even months. It’ll probably be faster to simply call the seller.
02 | You experience buyer’s remorse
This occurs when you regret making a purchase, but don't want to return the merchandise or cancel the service. It's not a refund if you keep the inventory and get a chargeback, though. It's theft. If you’re experiencing buyer’s remorse, and it’s not tied to some deficiency in the product, your only option is to contact the seller and try to return the goods. This is part of your responsibility as a consumer.
03 | A family member made the purchase
Your spouse or child might have access to your credit card. Merchants are not legally liable for in-house disputes between yourself and your family members, so you would not be entitled to a chargeback if that person made a purchase on your behalf. The only exception would be if the merchant used some kind of deceptive tactic, like enticing children to make in-app purchases without parental consent.
04 | Misunderstanding with the bank
Some credit card chargebacks result from misunderstandings at the banking level. You may call the bank to inquire about a purchase. But, if they think you're asking to dispute the transaction, they may initiate a chargeback, then demand evidence from you later to back up a claim you never meant to make. This could cause a lot of headaches. Just another reason why you should always contact the merchant before the bank.
05 | You Forgot About the Purchase
It’s easy to forget one particular transaction, especially if you make a lot of purchases in a short period. But, if you see a transaction on your statement which you don’t recognize, it’s essential to contact the merchant directly. Your credit card statement should include a phone number or email address. If not, this information should be available on the merchant’s website. A quick inquiry should tell you everything you need to know; if there’s no response, then you may proceed to request a credit card chargeback.
Of course, not all invalid credit card chargebacks happen by accident.
Intentional friendly fraud is a fast-growing problem, accounting for millions of dollars in losses every year. It negatively affects everyone involved. This includes you, the cardholder.
Here's What Happens if You Abuse Chargebacks
Consumers and merchants ultimately pay the price for chargebacks, but many cardholders aren’t aware they may suffer any repercussions. In fact, 81% of the individuals we polled said they’ve filed a chargeback out of convenience. Many say they would do it again.
We’re not here to scold anyone… but abuse of the chargeback process is bad news for everyone involved.
Credit card chargeback abuse could lead to:
Funds being tied up
Like we mentioned before, chargebacks may take weeks, or even months to resolve. In contrast, you can often get your money back in just a few days with a simple refund.
Higher Fees
If the chargeback gets overturned, you could get hit with an administrative fee or other consequences from the bank.
Businesses becoming stricter
If the bank suspects you’re filling illegitimate chargebacks as a means of cyber-shoplifting, they could cancel your line of credit and close your account.
Loss of banking privileges
If the bank suspects you’re filling illegitimate chargebacks as a means of cyber-shoplifting, they could cancel your line of credit and close your account.
Taking a credit score hit
Having less credit available to you means your credit score will drop. This would make it harder to secure additional credit.
On top of all that, there are other longer-term consequences to consider. While merchants and banks might take the brunt of the initial impact of friendly fraud, cardholders see higher fees and pay higher prices for products over time. There are also supply chain shocks and overall product shortages to consider in extreme cases, like we saw during 2020.
In short: chargeback abuse hurts everyone, even the person committing it.
The Role of the Responsible Cardholder
As a credit cardholder, it's your responsibility to ensure you use your account properly.
If you don’t recognize a charge on your account, don’t automatically assume it’s fraud. First, consult household members who may have access to the card and see if they authorized it without your knowledge. You should also contact the merchant in question to verify the purchase. It’s possible that you simply don’t recognize the business name or have forgotten a purchase.
Read the terms and conditions carefully before buying anything, and don’t click “accept” if you don’t agree to the policies. Before requesting a chargeback, double-check what you originally agreed to.
Cancel subscription services long before the next billing cycle hits, and allow the merchant plenty of time to terminate your agreement. The process could take a while, so don’t expect to avoid your next billing cycle if you reach out the day before the carge gets posted.
Lastly, give the merchant a sufficient amount of time to initiate a refund. This can often take a few days, so don’t jump to a chargeback if you don’t see immediate movement.
Filing a credit card chargeback should be used only in legitimate situations and only as a last resort after exhausting other options. Remember, your actions can have severe consequences for everyone involved. Don’t take that responsibility lightly.
