What Is A Chargeback?

Key takeaways

A chargeback is a disputed charge on a credit card that allows consumers to seek a credit from their credit card issuer instead of directly from the merchant.
Chargebacks are different from traditional refunds, which are issued by the merchant, and involve multiple parties, including the card issuer and merchant bank.
Chargebacks should only be used when attempts to resolve the issue directly with the merchant have failed, or in instances of fraud.

There are plenty of instances where you might need to dispute a charge posted to your credit card account, such as when a merchant makes a mistake with your order and refuses to refund you.

In these situations, you should pursue a chargeback on your credit card instead of asking for a traditional refund. While chargebacks should be used sparingly since they can cause problems for merchants on the other end of the transaction, they are a valuable tool for consumers who deserve their money back.

A chargeback occurs when you pursue a credit to your account for a purchase from your credit card issuer. While it may be possible to request a refund or another fix for your transaction directly with the merchant you purchased from, a chargeback effectively leaves your credit card issuer and other parties in charge of making a determination in your case.

Chargebacks save consumers time when it comes to figuring out how to get their money back when a transaction goes awry. You may need to provide your credit card issuer with details and proof of your chargeback claim, but your credit card issuer will reach out to the merchant, figure out what went wrong and decide whether you should pay for the transaction.

Credit card chargebacks vs. refunds

If you are unhappy with a product you purchased and you have the means to do so, you should return it to the retailer with your receipt and ask for a refund. In most cases, orders completed online may be returned by calling customer service, providing proof of purchase and mailing your product back to them.

In both of those cases, you would get a traditional refund. However, you should know that chargebacks and refunds are two different things.

Chargebacks

A chargeback occurs when you contact your credit card issuer and dispute a charge. In this case, the money you paid is temporarily refunded, at which point your card issuer will conduct an investigation to determine who is liable for the transaction.

Refunds

A refund for an item comes directly from the merchant who sold you the item. Return policies can vary, so you may not need a receipt to secure a refund. In some cases, you may be stuck with a store credit instead of your money back, but the merchant (and not the credit card issuer) takes care of the transaction either way.

How do credit card chargebacks work?

When you file a chargeback with your credit card issuer, you initiate a process that includes multiple organizations to determine who should pay for the transaction in question. Parties involved in a chargeback include:

The account holder (you) who disputed the transaction
Your credit card issuer, which may be a company like Chase, American Express or Capital One
The merchant, which is the company you purchased goods or services from
The merchant’s bank, which allowed them to accept credit card payments
The network that processes the credit card charge and decides how chargebacks are handled internally, which could be a company like Visa or Mastercard

Filing a chargeback on your credit card sets off a chain of events. Generally, you will receive a quick credit for the money you paid for the item, either from the card issuer itself or the credit card network. However, this temporary credit is only yours while the investigation takes place, and you’ll have to wait to find out if the credit becomes permanent.

At this point, your credit card issuer, the credit card network and the merchant’s bank may look over the charge to determine its legitimacy and the best course of action. If your card issuer is at fault, the disputed charge may also be sent to the merchant, who can ignore, accept or dispute the chargeback.

If the merchant you purchased from disputes the chargeback, there may be some back and forth between all parties involved, and you may be asked to provide more proof to back up your case, such as receipts or communication between you and the retailer. Ultimately, the credit card network decides who pays for the charge.

Your credit card issuer is required to explain the final verdict to you in writing. If you win the dispute, the temporary credit you receive will remain on your account. If it’s decided the dispute is not valid, the purchase will be reinstated on your credit card account.

Common reasons for chargebacks

The most common reasons cardholders typically request chargebacks include:

Merchant mistakes: Maybe you ordered an item online and received the wrong one or received one that was damaged. If the retailer you ordered from won’t take it back, you could issue a chargeback.
Duplicate charges: This type of mistake often happens at restaurants or while shopping in bulk online.
Unkept promises of refunds: If the merchant keeps promising to refund you but never does, you can request a chargeback with your issuer and have them sort it out.
Fraudulent charges: If you don’t recognize charges to your account, you may be a victim of credit card fraud. Contact your issuer to have the charges investigated and removed.

If you’re dealing with fraud, contacting your issuer is just the start

If you do find a fraudulent charge on your credit card, take additional steps to protect your identity. Most credit card issuers offer zero fraud liability that gets you off the hook for fraudulent purchases charged to your account, but a hacker or thief can still wreak havoc to your finances even after that initial instance of fraud is resolved.

Since they may have more of your personal information, you should take steps to protect yourself, including monitoring your credit reports, signing up for fraud alerts and transaction alerts and keeping a close eye on all your accounts so you’ll notice suspicious activity right away.

When to use a chargeback

Ordinarily, you should only initiate a chargeback on your credit card if you cannot work the issue out with the merchant, or you have been unable to contact them to try.

Bankrate editor Sarah Gage found herself initiating a chargeback after growing skeptical of a merchant who kept promising to refund her.

I had a meal delivery service send a box that wasn’t properly refrigerated, so everything cold was unsafe. I went around and around with them promising ‘a refund is coming’ and eventually gave up and went to Chase, who issued the chargeback with no hassle.

— Sarah Gage, credit cards managing editor at Bankrate

Seychelle Thomas, a certified financial education instructor and Bankrate writer, wound up initiating a chargeback when she never received the earrings she ordered as a gift.

I went back and forth with customer service for a month after the earrings never arrived. The shipping service marked the package as undeliverable for some reason and was unresponsive. The jewelry shop also wouldn’t issue a refund. So, I filed a dispute and sent copies of my correspondence with both companies to Capital One. I didn’t have a problem getting the chargeback.

— Seychelle Thomas, certified financial education instructor and credit cards writer at Bankrate

But, be sure to understand your issuer’s terms for chargebacks so that you can reach out to them in a timely manner. Most issuers will only allow you to issue a chargeback within a certain time period after making your purchase, usually 60 to 120 days. Bankrate editor Liza Carrasquillo found this out the hard way when her chargeback claim was denied.

I ordered custom reptile enclosures with a wait time of a few months. But I never received them, and I kept getting strung along by customer service after they promised a refund. Eventually, I turned to my card issuer. Discover initially tried to help, but my request was too far outside its dispute window, plus it couldn’t get in contact with the company, so my chargeback was denied.

— Liza Carrasquillo, credit cards editor at Bankrate

Can I dispute a credit card charge I willingly paid for?

You should only dispute a credit card charge and initiate a chargeback when you are a victim of fraud, or when you are certain you should receive a refund but the merchant is unable or unwilling to grant one. This includes situations like those outlined above where you willingly paid for a product or service but did not actually receive what you paid for.

However, you should never dispute a credit card charge that you willingly paid for and that resulted in you getting your product or service as promised. Not only is doing so unethical, but you won’t be able to keep the initial credit you receive if your issuer finds no wrongdoing on the merchant’s side during its investigation.

How to request a chargeback

The process can look different based on your card issuer, but most let you dispute transactions by phone, by email or using an online form or process. Plan on having details handy so you can explain what went wrong and submit your evidence online. Your credit card issuer will pick up the investigation from there.

The bottom line

Chargebacks provide a layer of protection for consumers who use credit cards to pay for goods or services, and you can file a chargeback regardless of whether the initial purchase was made in person or online. However, you should only file a chargeback when you cannot resolve the issue with the merchant or service provider directly. If you can get a refund by contacting the merchant or service provider directly, you should take this important step first.

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