A credit card dispute often leaves merchants with more questions than answers. Understanding the process is the first step in knowing how to fight chargebacks effectively.

The way this process plays out varies based on your bank and payment processor. However, there are similarities. Here is a list of the most frequently asked questions about the process:

Who Is Involved in the Credit Card Dispute Process?

The main stakeholders are the cardholder, the cardholder’s issuing bank, the merchant, the merchant’s bank, and payment transactions processors. In general, the cardholder requests a chargeback, the issuing bank requests a return of funds from the mechant’s bank, who asks the merchant to provide evidence of the transaction’s legitimacy.

What are the laws relevant to credit card disputes?

Chargeback law at the federal level dates back to the Fair Credit Billing Act, passed by Congress in 1975. The key provisions of the act are that consumers may sue credit card companies for fraudulent charges or mistakes on their billing statements, but that they must make a “good faith attempt” to solve the problem at the merchant level before resorting to litigation.

When Can Consumers File a Chargeback?

Cardholders can file a chargeback based on three types of claims. The first is fraud, a claim a transaction was not authorized. The second is incorrect merchandise, a claim that received goods did not match what was ordered. The third is administrative error, a claim the wrong amount was billed, a promised refund was not provided, or that a recurring billing payment was charged without consent.

How Do Banks Determine If a Chargeback Is Legitimate?

After the request is made and received, the card holder’s bank will review it and make a determination of its validity. Unfortunately, this review process is rarely comprehensive. Banks will do the minimum to investigate, and will always side with the card holder unless there is clear evidence of friendly fraud or some other kind of abuse.

What Do Banks Do If they Rule a Chargeback is Legitimate?

If the card holder’s bank’s investigation causes them to side with the card holder, a request is then made to the merchant’s bank for a refund of the card holder’s funds. The merchant’s bank will then review the request on their own, and decide whether to dispute it themselves or pass it along to the merchant.

What Does a Merchant’s Bank Do with a Request for a Chargeback?

Once the merchant’s bank will review a chargeback request against one of its merchants. In rare cases, they will dispute it. However, because the cost of the fraud is borne by the merchant, often the bank simply agrees.

What Does the Merchant’s Bank Do Once It Decides to Allow a Chargeback Claim against the Merchant?

Once the merchant bank decides not to challenge the request for a refund, it will pass the chargeback request on to the merchant. Unfortunately, merchants are not immediately informed of the decision. They will need to wait to receive their merchant statement to learn about the funds transfer cancellation.

How Do Merchants Get Informed of Chargebacks?

Merchants receive notice of the chargeback on their monthly account statement.

Is it Possible to Be Informed About Chargebacks in Real Time?

No. Because the merchant’s bank must wait until the cardholder’s bank refuses payment at the end of the month, it’s impossible for merchants to find out about chargebacks until they receive their monthly statement.

How Do Merchants Begin the Dispute Process?

Merchants must respond to the specific justification the bank used to cancel payment. Banks do provide this information via a code on merchants’ statements, but all major card networks use their own system. Because there is no standardized way to label all of the different reasons a card issuer may give, merchants must stay up to date and know the chargeback codes for Visa, MasterCard, Amex, Discover.

What are the Possible Results of a Dispute?

A dispute can end in one of three ways. One, the merchant wins and the chargeback is cancelled. Two, the card holder wins and the money is removed from the merchant’s account and sent back to the card holder. Three, the merchant wins but is hit with a new claim due to a processing error in the original one, or the discovery of new information.

Where Can Merchants Go to Get Help With the Dispute Process?

Many services exist to help merchants with disputes. To learn more about chargeback prevention and dispute strategies, check out our interview with Chargebacks911.

Don’t Let Fear of the Credit Card Dispute Process Cause More Problems

It’s important to realize chargebacks are a fact of life for merchants. Undeniably, the credit card dispute process doesn’t make dealing with them any easier.

In fact, given the high emotions of getting hit with a chargeback, merchants should always be aware to never to over-compensate by declining too many orders. Ecommerce false declines can actually do just as much, if not more, harm to revenues.

Despite the frustration and pain caused by eCommerce fraud, merchants shouldn’t allow panic to create new problems. Ultimately, remaining vigilant and using the chargeback prevention solutions available is the best way to minimize the impact of a biased system on their bottom lines.

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