What is a Chargeback?

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Have you ever wondered what is a chargeback? Years ago I had to do one when a hotel I stayed at charged the resort fees to my credit card when I had paid it in cash. Obviously, I didn’t want to be charged twice, so I contacted my credit card provider to initiate a chargeback.

That money doesn’t just get refunded automatically whenever you request a chargeback. Nor can you request one just because you don’t like what you bought or the store isn’t offering a refund. For a credit card chargeback to be successful, a formal investigation needs to be done. If you want your chargeback to go through, then you’ll want to understand how they work.

What is a chargeback?

A chargeback is a demand by you (the consumer) for a merchant to reimburse you for a disputed transaction. There are specific circumstances where a chargeback would be allowed such as:

  • If you’re charged the wrong amount
  • You were charged twice
  • You didn’t get the item or service that you purchased
  • Your refund has not gone through
  • Your purchase is not as described
  • You were charged for something that you already cancelled

It’s important to know that a chargeback is different from your zero liability and fraud protection. With zero liability, you’re not responsible for any unauthorized charges. When it comes to fraud, you’re protected if your card is stolen or you’re a victim of identity theft. Both of those cases are usually quick to prove.

With a credit card chargeback, you’re asking for your credit card company to refund you the disputed charge directly from the merchant. 

How to initiate a chargeback

Generally speaking, you would reach out to the retailer first to see if there was an honest mistake. This also gives you a chance to gather your evidence. If you’re not making any progress with the merchant, you can ask your credit card provider to reverse or reimburse you for the charge.

While the process of starting a chargeback can be easy, it’s not always guaranteed to work. Your credit card provider will need to open a formal investigation, which includes speaking to the merchant for their side of the story.

To perform a chargeback, you would typically take the following steps:

  • Check your credit card statement for any incorrect charges
  • Contact the merchant to see if the issue can be resolved
  • Gather any evidence such as receipts and email correspondence with the merchant for your chargeback
  • If you’re not getting anywhere with the merchant, contact your credit card provider to initiate a chargeback
  • Provide your credit card provider with any evidence you gathered
  • Wait for your credit card provider to finish their investigation

Assuming you’re successful, your credit card provider will post a credit to your account. You’ll also get a physical letter in the mail that will explain their findings.

Credit card chargeback example

About a decade ago, I ordered a bunch of t-shirts from a merchant. I was charged immediately, but the shirts were never shipped. I emailed them multiple times, and they said they would be shipped soon. After 45 days, my shirts didn’t arrive, so I demanded a refund. The merchant said there were no refunds and the items would be shipped soon.

Since this merchant was already operating in bad faith, I didn’t think the shirts would ever be shipped. I contacted my credit card provider to open a dispute/chargeback. 

The 45-day mark was essential since I knew my credit card provider only allowed chargebacks within 30 days of my statement closing. At the same time, I sent them copies of the receipts and emails I had with the company.  My credit card company checked with the merchant, but they sided with me pretty quickly as I saw a credit on my account within two weeks.

As for my hotel dispute, it was more complicated. I contacted the hotel as soon as I noticed I was charged fees I had already paid. They claimed that all the daily balances added up on their end, so it couldn’t have been a mistake. I said that had no relevance as charging me twice did not mean their balances would be off. I asked them to check the security footage as they would see me paying cash. After two weeks, they responded that their footage gets destroyed after 30 days. I said that’s not my fault as I inquired before the 30-day window was up. They didn’t care and refused a refund.

I opened a dispute with American Express and provided them with all my evidence. They did their due diligence and contacted the hotel. In the end, American Express couldn’t definitely say the hotel was at fault, but it was clear that I wasn’t making this up. I had been an American Express customer for years with a clean record and the credit card chargeback I was making was for $50. They credit my account in good faith.

How long does a chargeback take?

Most credit card providers will say that a chargeback can take up to 4 weeks. While that may seem excessive, they say that to protect themselves. In most cases, you can likely expect a decision in a week or two. Obviously, the more evidence you have, the more likely you will be successful at your chargeback.

For example, let’s say you ordered an item, but were shipped something else. When you contact the merchant, they insist you got the right thing, You could easily take pictures of your invoice, the packaging, and the actual item you received as evidence. 

Basically, the more evidence the credit card provider has, the more likely your case will go quickly and end in your favour. As you can imagine, smaller sums typically get resolved quicker than larger ones.

Do I need to pay the balance when doing a chargeback?

Many people wonder if they need to pay the disputed charge when doing a chargeback. The answer is a hard yes and even your credit card provider will tell you that. Some people find this ridiculous and will refuse to pay for a charge they didn’t make. Here’s the thing, until your credit card provider concludes their investigation, they consider that a charge you made.

You could refuse to pay it in protest, but do you really want to potentially tank your credit score because you’re angry? If you know you’re in the right, just pay it for now. Your refund will come.

Don’t worry if you have a positive balance after the chargeback goes through. You can always request your credit card provider to send you a cheque for the balance.

What happens if your chargeback is denied?

If you don’t have enough evidence to support your claim, your chargeback could be denied. The key thing is to try and find out their reasoning. If your credit card provider sided with the merchant, then there’s not much you can do about it. However, it’s possible for their investigation to be inconclusive. You could potentially ask them to credit you the amount in good faith. 

Now let’s say your credit card chargeback has been denied, and your credit card provider won’t credit you anything. You could contact your credit card provider’s ombudsman as they review customer complaints. That said, you really need a compelling case to show that you’ve been done wrong.

Final thoughts

Knowing what is a chargeback is one thing, but knowing how to make a successful claim is totally different. Now that you know the formal steps, you can initiate a credit card chargeback when you’ve been wronged. There’s also one final thing worth mentioning. Sometimes asking for a chargeback is not worth your time. It could take hours for you to get in touch with the merchant and your credit card provider. While it sucks to lose that money, your time is likely more valuable.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

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