07/31/2015 03:44 pm ET Updated Dec 06, 2017

The Credit Card Dispute Process


What if I told you that one of the most valuable features of your credit card is one of the least used features? Most credit cards offer Dispute Resolution services that are unparalleled by any form of payment, allowing cardholders to have the upper hand when a merchant refuses to do the right thing.

How the Credit Card Dispute Process Works

Consumers are protected by a number of laws and acts, such as the CARD Act. When it comes to fraudulent and unauthorized charges, credit card users are protected under the Fair Credit Billing Act of 1974 (FCBA). Those that carry a credit card that comes with Zero Fraud Liability will also be protected from unauthorized charges. The FCBA also provides for a recourse in the case that cardholders are billed for goods or services that they did not receive, or if what was received is significantly different than what was described to them.

For example, imagine that you place an order for a product in person, over the phone, or through the Internet, your credit card is charged, but you never receive your order. Then you contact the merchant that insists your order was shipped and thus refuses to refund your money. If you had paid with cash, check, or even a debit card, you will have no recourse short of filing a lawsuit in small claims court.

But if you were smart and used your credit card, then you could contact your card issuer and request what is called a "chargeback." The card issuer will immediately issue you a temporary refund while they continue their investigation. You, as the cardholder, will have the chance to document your claim, while the merchant chooses to respond. For example, if the merchant can produce a delivery receipt with your signature, your claim will likely to be denied. But if the merchant can't prove you received the goods or services you paid for, or chooses not to respond, then you will win the dispute and the temporary credit will then become permanent.

In many cases, chargebacks become necessary when the merchant goes out of business before delivering a product or service. For example, if you signed up for a year's worth of telephone service through the Internet, and paid in advance with your credit card, but the provider went bankrupt, you could request a chargeback for the portion of the service that you did not receive. The same would be true if you purchased an airline ticket from a carrier that later stopped flying. This can be an especially valuable option when dealing with a large company that owes you a refund, but has purposely erected layers of bureaucracy to prevent you from actually receiving it.

In addition to covering goods or services not received, cardholders can also request a chargeback when what is delivered is significantly different than described. If you were to order a 20 foot long video cable, and you received one that is 15 feet long, you could request a chargeback in that instance as well. Nevertheless, the chargeback process is not a satisfaction guarantee. If you ordered a piece of clothing that met the description, but didn't fit you right, you would still be bound by the merchant's return policy as you would be unlikely to win a chargeback dispute.

How to Use Chargebacks

First, it always makes sense to attempt to resolve a dispute directly with the merchant. By explaining that you didn't receive the goods or services you ordered, or that what you received was not as described, most reputable merchants will try to do the right thing by replacing your purchase or refunding your card. But there will always be less scrupulous companies that will refuse to help you, and others that will make it impossible to speak with someone.

In those cases, you should actually tell the merchant that your intention is to request a chargeback if they cannot resolve the matter directly with you. It turns out that chargebacks are very time consuming for merchants to defend, and can be very costly when they lose. In those cases, just the threat of a chargeback is enough to make a smart merchant reconsider their stance.

But, if all else fails, you simply have to call your card issuer to make the chargeback request. In fact, many card issuers will immediately grant cardholder's requests for small amounts and issue a permanent refund. In most cases, when the amount in question is larger, you will receive an immediate credit, followed by some paperwork. which is part of the bank's resolution process.

Final Word

Credit card disputes are actually a very cardholder-friendly process. By using the chargeback as a final option, you can ensure that you will never have to pay for anything that you didn't receive.

This article originally appeared on The Credit Card Dispute Process.