Initially created to protect consumers, credit card chargebacks have become a headache for business owners. Whether it is one time or on a frequent basis, chargebacks can hurt your cash flow. You may be wondering, are merchants liable for chargebacks? Can a merchant reverse a credit card transaction? We’ve got answers to these important questions and more. This post covers everything you need to know about credit card chargeback merchant rights.

How Do Chargebacks On Credit Cards Work?

Originally established in the 1978 Fair Credit Billing amendment to protect consumers, the chargeback is a forced payment reversal. This forcible reversal of funds is typically due to a credit card holder’s dispute of the transaction. It has become a major tool in the fight against identity theft, especially for online credit card processing and ACH transactions, along with other fraudulent or improper payments.

However, chargebacks can also be caused by miscommunication, errors, or consumer fraud.

So how do chargebacks on credit cards work? In some cases, the issue may be technical, meaning there are non-sufficient funds or a bank processing error. Clerical problems can also lead to duplicate billing, an incorrect charge amount, or a refund that was not issued. In other cases, quality issues lead to the customer claiming they didn’t receive the goods or services as promised. When chargebacks are fraudulent, the consumer claims they did not authorize the purchase or claims identity theft.

When a consumer initiates a dispute, the “issuer” of the consumer’s card will send the transaction back to the “acquirer,” or bank that manages the merchant’s account. From there, it will be resolved or forwarded to you as the merchant. You then have the option to accept the chargeback or fight it with compelling evidence. The decision is ultimately in the hands of the issuer, however. If you disagree with the outcome and the charges are serious enough, you can decide to go into arbitration.

Are Merchants Liable For Chargebacks?

Every case is different, which is why there is no hard and fast rule when it comes to who is liable for chargebacks. When it comes to issues of customer service or merchant errors, the answer is usually yes—the merchant is liable.

For technical matters, it depends. For example, if you can’t process EMV chip transactions, and your customer has an EMV card, you may be liable for a chargeback. Ensuring that you can process chip cards is one of many ways you can reduce credit card processing chargebacks.

In the case of true fraud, the merchant is not liable, but does have the burden of proof. You must make a strong case for why the chargeback in question should be struck down. The consumer will win by default if you do not fight the chargeback with concrete and proper evidence. Read on for details about the best way to prove your case and have a provisional credit reversed later in this post.

Knowing Your Credit Card Chargeback Merchant Rights

While credit card chargebacks can take a toll on your business finances, you don’t have to lose sleep over the issue. There are several protections in place for merchants that are important to be aware of from the start. The most important credit card chargeback merchant rights include:

  • Cashback is not included in a chargeback. If a debit card is used for a transaction and the customer received cash back, the cash amount is not included in the chargeback total.
  • Late deliveries aren’t eligible for an immediate chargeback. When a customer initiates a dispute because the product was delivered late, they must first attempt a return. A chargeback is only possible if a return and refund is denied.
  • There is a 15-day waiting period when returns are in question. As a merchant, you should have time to provide a refund after a return is initiated. With this in mind, a customer can’t request a chargeback until 15 days after a return.

Remember, banks and credit card companies want to carry out a process that is fair for both businesses and consumers. They have processes in place in order to avoid fraudulent activity that will hurt your business, and checks to keep consumers safe. As long as you are honest and proactive, you shouldn’t have a problem fighting a chargeback that is invalid. 

Can A Merchant Reverse A Credit Card Transaction?

If you believe a chargeback is invalid or fraudulent, you should dispute it immediately with your merchant account provider. In fact, choosing not to dispute chargebacks increases your fraud exposure rates and could hurt your business in the long-term.

As previously mentioned, the burden of proof is on you as the merchant. This is why it’s so important to keep detailed records of every transaction. Some forms of evidence you should gather include:

  • Transaction descriptions: In some cases, a customer may not recognize the business name that appears on their credit card statement. This may happen if your LLC or business name is noticeably different from the name you present to the public. In this case, a simple heads-up during check-out or a transaction description can clear the confusion.
  • Return policy information: Counter a refund request if your policy clearly states that one is not warranted. Provide details about your policy and where it can be found on your website, receipts, and emails.
  • Written communication: Any conversations and interactions with the customer are an important part of your paper trail when you experience chargeback fraud.
  • Shipment tracking details: Having proof of delivery is an invaluable line of defense against chargeback fraud. Be sure that both you and the customer had access to shipment tracking information. If you required a signature, even better.
  • Order confirmation message: If an automatic email confirmation was sent to the customer, you should provide proof of this. This can even help prevent mistaken forms of chargeback fraud by serving as a reminder that a purchase was made.

While common, chargebacks should not become a normal part of doing business. Properly disputing these issues can show that you are conducting business in a professional way.

How Can PaySimple Help?

A dedicated merchant account from PaySimple can help defend your business against illegitimate chargebacks and chargeback fraud. What’s more, our exceptional customer service team is just a phone call away. When PaySimple is on your side, you have real-life human experts ready to assist you when you need it most.

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