A chargeback is when a merchant refunds a customer after a customer successfully disputes a charge made to their credit card. Although all major credit card networks and issuers have a chargeback policy in place, the methods and standards that a customer must meet when seeking a chargeback varies among credit institutions.
Therefore, WalletHub.com conducted its 2012 Chargeback Policy Report to determine the key information needed in order for a consumer to successfully dispute charges made to their credit cards. To conduct the report, WalletHub.com contacted the 4 major credit card networks and the 10 largest U.S. credit card issuers for information on how they would proceed in common chargeback scenarios, including when a merchant is unresponsive to a costumer’s dispute, when a customer receives the wrong item, and when a customer disputes an inflated tip with and without supporting documentation, among others.
Key Findings
- The credit card networks (i.e. VISA, MasterCard, American Express, and Discover) set the framework for credit card issuers (i.e. Chase, Capital One, etc.) to deal with chargeback situations, but the issuers also have some control over how they deal with chargebacks.
- Among the credit card networks and issuers that responded, all have consumer-friendly charge back policies and tend to favor the customer over the merchant.
- There is little discrepancy among the networks and issuers that responded in terms of how they would handle each chargeback scenario outlined by WalletHub.com. USAA stood out as being extra consumer-friendly because they credit the customer account even when the customer is unable to produce a receipt.
- Among the issuers and networks that responded, all of their policies stipulated that a merchant is charged back in the event that the merchant does not respond to a customer's dispute.
- The most common scenario in which the customer is not credited for a dispute is when a customer is unable to produce a receipt when claiming that a tip was inflated.
- It is notable that VISA, the largest of the credit card networks, was unable to respond to the common chargeback scenarios outlined by WalletHub.com for this report. The other three major networks, MasterCard, American Express, and Discover, all explicitly disclosed how they would proceed under the circumstances in each chargeback scenario that WalletHub.com proposed.
- Chase and U.S. Bank were the only 2 of the 10 largest credit card issuers that declined to disclose how they would handle common chargeback scenarios.
Detailed Card Network Responses
Below is a summary table of the responses from each credit card network based on the above scenarios (American Express and Discover are both a credit card network and a credit card issuer):
| Network | Scenario 1: Customer disputes and merchant doesn’t respond, what happens? | Scenario 2: Customer disputes and merchant acknowledges mistake, what happens? | Scenario 3: Customer disputes, documentation points to customer’s case, merchant acknowledges that what was delivered was not what was initially ordered, but that this was due not to a mistake on his part, but instead because the customer changed the order verbally. What happens? | Scenario 4a: Merchant inflates tip, according to customer. Customer has receipt to back up claim. What happens? | Scenario 4b: Merchant inflates tip, according to customer. Customer does not have receipt to back up claim. What happens? |
|---|---|---|---|---|---|
| VISA* | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond |
| MasterCard | Merchant gets charged back | If the merchant acknowledged a mistake and arranged to deliver the valid merchandise or a credit to the cardholder, there isn’t a need for a chargeback. However, if the merchant agrees to do something and fails to do it, then a chargeback will occur. | If a cardholder changes their order after the fact verbally, and the merchant fulfills the order as originally taken, the chargeback can only address what happened when the card was presented (the original order). There is not a chargeback if the merchant can show documentation that they did everything as requested by the cardholder or work with the cardholder to remedy the situation first. If that is not the case, then the merchant gets charged back. | Merchant gets charged back | Documentation will be requested by both parties (merchant and cardholder) to validate the tip amount. If that information is not available from the cardholder, there is no confirmation of the discrepancy and there is not a chargeback. If the merchant/acquirer cannot provide the receipt, there is a chargeback. |
| American Express | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | American Express requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant is charged back. |
| Discover | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Discover requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant gets charged back. |
* As noted in the table above, VISA declined to respond to the specific chargeback scenarios outlined by WalletHub.com. They said their reason for doing so was that the scenarios were too broad to endorse. They also said that VISA provides the framework, but it is ultimately the issuer that decides how to handle chargebacks.
Detailed Card Issuer Responses
Below is a summary table of the responses from each credit card issuer based on the above scenarios (American Express and Discover are both a credit card network and a credit card issuer):
| Issuer | Scenario 1: Customer disputes and merchant doesn’t respond, what happens? | Scenario 2: Customer disputes and merchant acknowledges mistake, what happens? | Scenario 3: Customer disputes, documentation points to customer’s case, merchant acknowledges that what was delivered was not what was initially ordered, but that this was due not to a mistake on his part, but instead because the customer changed the order verbally. What happens? | Scenario 4a: Merchant inflates tip, according to customer. Customer has receipt to back up claim. What happens? | Scenario 4b: Merchant inflates tip, according to customer. Customer does not have receipt to back up claim. What happens? |
|---|---|---|---|---|---|
| American Express | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | American Express requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant is charged back. |
| Bank of America | Merchant gets charged back | Merchant gets charged back | Depends on the supporting documentation | Merchant gets charged back | Bank of America requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant is charged back. |
| Capital One | Merchant is responsible for the charge | Merchant is responsible for the charge | Merchant is responsible for the charge | Merchant is responsible for the charge | Capital One requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant is responsible for the charge. |
| Chase* | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond |
| Citi | If a cardmember contacts Citi and disputes a charge, Citi will then contact the merchant regarding the purchase and dispute. If the merchant does not respond within 45 days, the Citi cardmember receives a permanent credit for the transaction. | When a merchant acknowledges an error, they may process a credit to the Citi cardmember’s account. | Citi will work with the merchant on behalf of the cardmember to help resolve the dispute. The resolution will be based on factors including the cardmember’s agreement with the merchant, return policy, as well as any supporting information from the cardmember on the purchase. | The Citi cardmember can dispute the gratuity based on information from their receipt. Citi will notify the merchant of the error and provide a credit for the disputed charge based on the customer’s receipt. | Citi will work with the merchant on behalf of the cardmember to resolve the billing discrepancy. |
| Discover | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Discover requests copy of receipt from merchant and acts accordingly. In the event merchant is not able to produce a receipt, merchant gets charged back. |
| HSBC | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Customer is held liable for the charge. |
| USAA | Customer is credited for disputed amount.The merchant normally gets charged back. For small dollar amounts, however, USAA takes the loss. | Customer is credited for disputed amount.The merchant normally gets charged back. For small dollar amounts, however, USAA takes the loss. | Customer is credited for disputed amount.The merchant normally gets charged back. For small dollar amounts, however, USAA takes the loss. | Customer is credited for disputed amount.The merchant normally gets charged back. For small dollar amounts, however, USAA takes the loss. | Customer is credited for disputed amount. USAA will credit the customer’s account as long as the disputed amount appears reasonable based on the amount and type of the transaction.The merchant normally gets charged back. For small dollar amounts, however, USAA takes the loss. |
| U.S. Bank* | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond | Declined to Respond |
| Wells Fargo | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back | Merchant gets charged back |
* As noted above, both Chase and U.S. bank declined to respond to the specific chargeback scenarios outlined by WalletHub.com. Reasons for doing so:
- U.S. Bank said that their understanding is that all VISA and MasterCard issuers follow the same policy since it is their policies that U.S. Bank follows for charging back.
- Chase said they could not speculate on or confirm the described scenarios, but that they diligently work with customers to resolve situations, like the ones WalletHub.com described, as quickly as possible.
Consumer Tips
The nature of card network and card issuer chargeback policies bring to light a number of best practices that consumers can employ in order to minimize both hassle and monetary loss as a result of merchant mistakes.
- Keep Your Receipts: Merchants are people too, and like the rest of us they make mistakes from time to time. With that and the importance of documentation to a successful chargeback in mind, it’s important that you save all of your receipts from plastic purchases. At the very least, this process will help you out come tax time.
- Thoroughly Review Monthly Statements: It’s difficult to spot merchant errors if you don’t check your credit card and debit card transaction history for accuracy each month. This will also help you from a budgeting and identity theft prevention standpoint.
- Contact Your Financial Institution Immediately: Timely reporting is one of the most critical aspects of the chargeback process, as there is essentially a statute of limitations on credit card and debit card disputes. You should therefore sound the alarm as soon as you see a potentially erroneous charge listed on your account statement.
- Understand Liability Rules: Credit card and debit card liability policies are quite beneficial to the consumer, but there are certain caveats that everyone must understand. For example, you’re definitely eligible for $0 liability protection when using a credit card or signing for debit card purchases, but things aren’t quite as straightforward when it comes to PIN debit card transactions.
- Trust (But Don’t Abuse) the Dispute Process: The credit card and debit card dispute process is designed to benefit the consumer. It provides an avenue through which to investigate suspicious charges, and in most cases you will be given the benefit of the doubt with either the merchant or the credit card company eating any related losses. What’s more, if you encounter any problems along the way, the Consumer Financial Protection Bureau can intervene to help. As long as your claim is legitimate, you should expect the situation to be resolved in your favor. However, crying wolf in an effort to avoid paying for a purchase that you did indeed make is a surefire way to get into trouble.
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