Today, credit cards are such a ubiquitous part of life that many users don't even realize they have chargeback protection. When Can Consumers Legally Use Chargebacks? The new regulations were an effort to alleviate consumer fear, and it worked: bank credit card use exploded in the 1970s … and until relatively recently, chargebacks served the system well. The bank, in turn, could void a credit card transaction, then withdraw funds that were previously deposited into the merchant’s bank account and slap the merchant with a hefty fee (or in extreme cases, revoke the merchant's card processing permissions). What is a chargeback? It could be a serious threat to your business! Find out more.īut using a chargeback, the cardholder could effectively go over the merchant's head and secure a refund from the bank itself. As a consumer protection, the chargeback process is naturally skewed towards the cardholder’s safety, in multiple ways: In fact, merchants likely won't even know it happened until after the fact.
An investigation follows, and if the bank feels the cardholder’s request is valid, funds are removed from the merchant’s account and returned to the consumer the consumer, on the other hand, is in no way obligated to return whatever was purchased. There is one very relevant difference that sets a payment dispute apart, though: rather than contact the business for a refund, the consumer is asking the bank to forcibly take money from the business’s account. On the outside, chargebacks can appear very similar to traditional refunds. To understand how chargebacks work (and how they don't), it helps to have some background on the rationale behind chargebacks, and the impact they have on those involved.
If those two things seem at odds, well, that was never the way it was intended. If you're a consumer, chargebacks represent a shield between you and dishonest merchants. If you're a merchant, chargebacks can be a frustrating threat to your livelihood. What is a chargeback? If we look at the chargeback definition in simple terms, it's the reversal of a credit card payment that comes directly from the bank. What Are Chargebacks? What Do They Mean for Your Business? The funds are pulled from the merchant's account, and returned to the cardholder's account as part of the chargeback process. This often happens after a cardholder contacts their bank to dispute a transaction, claiming that it resulted from fraud or abuse. A chargeback is a credit or debit card charge that is reversed by a bank.
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