There are 5 Basic, Valid Reasons to Dispute a Charge. Do You Know What They are?
What do you do if an unauthorized charge appears on your credit card statement? Or, if you made a purchase, but the seller didn’t live up to their end of the bargain?
In either case, you’re entitled to dispute the charge and get your money back. This is a process commonly known as a chargeback, and your right to request one is actually protected by law.
In 1978, The Electronic Funds Transfer Act was passed to ensure consumers had the ability to dispute questionable transactions and get their money back from unscrupulous merchants. That still leaves a lot of questions, though. For instance, how do you act on the rights guaranteed under the EFTA? What are considered valid reasons to dispute a charge, and what should you do before contacting the bank?
Let’s discuss your options and try to clarify this issue a bit.
Recommended reading
- A Step-By-Step Guide to the Chargeback Process in 2024
- Debit Card Chargebacks: Everything You Need to Know in 2024
- Provisional Credits: Here’s Everything You Need to Know.
- What is a Credit Card Chargeback? How Do They Work?
- The History of Chargebacks: From Protection to Threat
- Chargeback Costs: The Shocking Truth in 2024
How Disputes Work
When you file a dispute with your bank, you are essentially stating that the merchant has failed to honor their end of a transaction. They either failed to perform due diligence and let a fraudster impersonate you to conduct a purchase, or if you did authorize a sale, the merchant didn’t provide what was promised.
You’re expected to contact the merchant about the charge before disputing it. Also, your dispute reason must fall into a select number of categories approved by each card network (more on this below).
Let’s say you have valid reasons to dispute a charge, and you’ve already tried to resolve the matter with the seller directly, so you decide to contact the bank that issued your credit card. At that point, your bank will contact the merchant’s bank to inform them of the dispute. At that time, your bank will issue you a provisional credit for the amount in question.
Important!
Basically, you have the right to dispute a transaction as long as you’re doing it for the right reasons. That is, if a transaction was unauthorized, or if something you bought arrives broken, isn’t what you ordered, or never arrives at all. You may also be able to dispute if the merchant fails to provide your refund, makes a mistake, or is otherwise uncooperative.
The merchant has the option to provide evidence that may invalidate your claim. If this works, your bank may need to reverse your provisional credit and return the funds to the merchant, and you would not be refunded for the original transaction. If your claim is valid, however, and a merchant doesn’t attempt to reverse it, your issuing bank will file the dispute as normal.
5 Valid Reasons to Dispute a Charge
We can divide all valid disputes into one of five basic categories: criminal fraud, authorization errors, processing errors, fulfillment errors, or merchant abuse. In the next sections, we’ll touch on each of these in more detail.
Valid Chargeback Reason #1:
Criminal Fraud
What counts as criminal fraud? Any unauthorized use of your payment details by a third party is considered an act of fraud. Additionally, criminal fraud can also refer to someone using your identity to make fraudulent purchases, bank transfers, or other questionable activity.
You’reinsulated against liabilityfor most acts of criminal fraud perpetrated against you. When an unauthorized purchase is discovered, you should report the incident to the card networkand the Federal Trade Commission. You can also contact the bank to have the charge reversed.
Here are a few common ways in which you can be targeted:
- Account Takeover Fraud (ATO): This occurs when cybercriminals take control of a consumer’s account details to make fraudulent purchases, access additional accounts, or use those accounts to infiltrate outside accounts. Fraudsters employ a variety of methods to achieve this data, from data breaches to phishing scams.
- Synthetic Fraud: Rather than impersonate a single person, the fraudster combines pieces of data stolen from multiple individuals to create a fake (synthetic) persona. This fake user identity is then used to open accounts or go on a shopping spree, leaving the bill to whichever individual holds the corresponding Social Security number.
- Clean Fraud: The fraudster uses stolen card data to illegally buy goods or services. At that point, however, the transaction information is manipulated to bypass fraud detection devices. The name refers to the fact that the transaction appears “clean” and will not be picked up by fraud filters, blacklists, or other online fraud detection tools.
It’s important to remember that anyone can be a victim of fraud. Cybercriminals are very skilled at mining, selling, and using data to defraud the public. You should immediately examine any unfamiliar purchase you find on your credit or debit card statement. If fraud is suspected, reported to the above channels as soon as possible.
Valid Chargeback Reason #2:
Authorization Errors
The authorization request is a phase in the transaction process. These are “behind-the-scenes” chargebacks; in most cases, disputes tied to authorization errors will be initiated by your bank, without your involvement. Examples include:
- Transactions processed without valid bank authorization
- Transactions processed without a valid authorization response from the bank (i.e. no “approval” message was received)
- Transactions processed without asking the bank for authorization
- Transactions processed with an expired or declined card (forced or manual transactions processed after the transaction was declined)
These instances are more common when transaction information is entered manually, rather than through a point-of-service (POS) terminal.
Valid Chargeback Reason #3:
Processing Errors
Frankly, processing errors are quite common. The simplest reason for this is that all businesses are operated by human beings, and all human beings are fallible. If a merchant submitted the transaction late for processing, used the incorrect currency, or processed the same transaction twice, you’d be entitled to dispute the transaction.
Other examples of processing errors you are encouraged to dispute, include:
- Subscription Errors: If you canceled your subscription with a merchant but were charged for it anyway.
- Incorrect Amount: The amount charged to your card was more than the value of the transaction in question.
- Payment Errors: Your card was charged twice for the same item, the wrong card was charged, or you were billed for items you didn’t order.
Valid Chargeback Reason #4:
Fulfillment Errors
This is a pretty vague category, but the vagueness is deliberate. Shipping and fulfillment is a complex process, and there are a lot of things that can go wrong.
Just a few examples of merchant errors that fall within the fulfillment and shipping sphere of disputes include:
- Basic Fulfillment Errors: You paid for one item but received an entirely different item that you did not order. This can also include wrong colors, sizes, and other fulfillment errors.
- Inventory Errors: Items that you ordered were canceled or not in stock, but your transaction was processed anyway.
- Shipping Errors: The item was shipped to the wrong address, shipped notably late), or never arrived at all.
Valid Chargeback Reason #5:
Merchant Abuse
This can be a touchy subject between consumers and merchants. The vast majority of sellers, both in-store and online, are legitimate and eager to work with buyers when issues arise to avoid a chargeback.
Most legitimate merchants would be happy to talk with cardholders to resolve an issue. In the event of merchant abuse, though, you’re going to have trouble pinning that merchant down for a response, so a chargeback may be necessary.
In these cases, you may need to provide a little more information to the bank when requesting a chargeback:
- Misrepresented Products: When an item varies significantly from the advertised product you purchased or arrives as a completely different item from what you ordered — this is a legitimate reason to dispute the charge.
- Items Never Arrived: If you can prove that the item you ordered was never sent to you, you are entitled to dispute the charge.
- Service Not Provided: Same as the situation above, if you paid for a service you didn’t receive and can prove it with verifiable evidence, you are entitled to dispute the charge.
- Merchant Failed to Refund: You did contact the merchant and arrange a refund for an item that didn’t live up to your expectations, but the merchant failed to give you your money back.
In all these cases, you should expect to provide evidence to back up your claim. For instance, if you claim that the seller misrepresented their products, you will have to provide evidence that the listing is false. Photos of the item’s appearance and state after delivery may work, along with documentation of any attempts you made to rectify the issue with the merchant that were ignored.
Be careful though. If you can’t prove you tried to resolve the issue with the merchant first, the merchant can often provide information to counter your claim.
Invalid Reasons to Dispute a Charge
So, now that you know some of the legitimate reasons to dispute a charge, let’s discuss situations in which you shouldn’t file a chargeback.
As you no doubt noticed, the list of acceptable reasons to dispute a charge isn’t very long. Generally speaking, merchants can’t be held accountable for purchases consumers just generally regret. In those instances, consumers who request chargebacks are engaged in a practice called first-party fraud. Despite popular belief, this does carry consequences for offending consumers.
Merchants: take action today to stop invalid chargebacks & recover revenue.
Never bypass a merchant for a forced bank refund. The law allows consumers to dispute charges when the merchant has made a legitimate error or has failed to uphold their end of a transaction. This does not include items you simply don’t like or which you’ve decided you don’t need.
On that note, here are a few invalid reasons to dispute a charge:
- You don’t recognize the merchant’s billing descriptor.
- You forgot about a recurring payment.
- You requested a refund, but it took longer than expected.
- You don’t know the difference between chargebacks and refunds.
- You simply forgot about the purchase.
- You regret a purchase, but don’t want to go through the merchant’s customer service channel for a return.
- You wanted to return an item but waited too long to return the item within the merchant’s return policy.
- Someone in your household made a purchase on your account.
- You file a dispute because it seems easier or more convenient than requesting a refund.
Common QuestionCan cardholders abuse chargebacks deliberately?
Yes. This is an increasingly-common problem called “cyber shoplifting.” This happens when a buyer wants to get something for free, so they order an item but then file a dispute to recoup their money later on.
Learn more about cyber shoplifting
Keep in mind: it’s possible to make a mistake or misunderstand the difference between a refund and a disputed transaction on occasion. However, this isn’t a mistake someone is likely to make more than once.
Merchants, banks, and credit card networks have begun to take note of repeated chargeback abuse. They’re beginning to impose heavier consequences for this behavior.
Consumer Consequences for Illegitimate Disputes
As we have consistently hinted in this article, consumers are not exempt from consequences if they abuse the transaction dispute process.
Once upon a time, merchants bore the sole liability for chargebacks filed against them. Not so much nowadays, though. First-party fraud became enough of a problem in the last decade, for banks and card networks to start adapting the rules in response.
You want to make absolutely sure that you’re on solid footing before requesting a chargeback. For one, there’s no real reason to request a chargeback instead of a refund, as chargebacks typically take much longer than refunds.
In addition, consumers can be on the hook for fees and other post-dispute fallout:
- Cardholders who "cry wolf" too often may not get help in genuine fraud cases.
- You may be penalized if caught; up to and including loss of banking privileges.
- Loss of banking privileges can impact your credit score.
Simply put: always contact the merchant with any issues you have with a purchase before contacting the bank. Never jump to the dispute process arbitrarily.
You have the right to dispute charges for a variety of very good reasons. However, you need to exercise that right carefully.
FAQs
When should you dispute a transaction?
Basically, you have the right to dispute a transaction when you’re doing it for the right reasons. In other words, if a transaction was unauthorized, you can dispute the charge and recover your funds. You can also dispute a purchase if something you bought online arrives broken, isn’t what you ordered, or never arrives at all, or if the merchant fails to provide your refund, makes a mistake, or is otherwise uncooperative.
How do you win a disputed transaction?
Provided your reason to dispute is represented among the card network’s list of acceptable options, your issuing bank (the bank that provides your credit or debit card) will contact the merchant’s acquiring bank to inform them of the disputed charge.
At that time, if your reason is considered valid and you’ve satisfied all of your bank’s requirements to file a dispute, your bank may issue a provisional credit for the amount in question.
What are some invalid reasons to dispute a transaction?
Before you file a dispute, your bank or card network will ask you to provide a reason for your dispute. If the reason you’re disputing is not directly related to an error by the merchant, or a case of criminal fraud, your dispute is likely invalid.
For instance, misunderstanding a return policy, forgetting a payment due date or subscription payment, or not recognizing your merchant’s payment details are all invalid reasons to file a dispute.
What happens if I falsely dispute a transaction?
A false chargeback claim is referred to as friendly fraud. This carries consequences for offending consumers.
Cardholders who "cry wolf" may not get help in genuine fraud cases. Also, cardholders may be penalized if caught; up to and including loss of banking privileges, and/or cardholders could lose banking privileges and the falsely disputed charge can impact the cardholder’s credit score.
Can I dispute a charge for bad service?
Yes, bad service can be a valid reason to dispute a charge. However, you are expected to contact the merchant first and attempt to resolve the problem with the merchant before requesting a chargeback.
