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What happens when a cardholder disputes a credit card transaction?
What happens to you, the merchant, when cardholders dispute a charge?
How does this bank (credit card) dispute process work?
This is information you need to know.
Disputes can lead to chargebacks. Every chargeback costs you money. Too many chargebacks and your business suffers on many levels.
Let’s talk about this.
What is a Disputed Charge?
A credit card holder receives their monthly credit card statement.
By law, the cardholder can dispute any charge they find to be incorrect. The dispute process exists to protect cardholders’ consumer rights.
But this process can be abused. There are legitimate and illegitimate reasons for disputing a transaction.
Legitimate Reasons for Disputing a Charge
- Unauthorised Transactions
- Billing Errors
- Non-receipt of Goods or Services
- Not as Described or Defective Merchandise
- Incorrect Transaction Date or Amount
Illegitimate Reasons for Disputing a Charge
- Friendly Fraud: Intentionally filing a false dispute.
- Trying to Avoid a Valid Charge.
- Misunderstanding the Terms of Sale.
- Not Recognizing the Vendor’s Billing Name.
- Double Dipping: Requesting a chargeback after a refund or credit.
Either kind of transaction can result in a chargeback based on the evidence brought to the dispute process. It’s a matter of who the issuing bank believes—the cardholder or the merchant.
Let’s look at what happens when cardholders dispute a transaction and its impact on the merchant.
When a Cardholder Disputes a Transaction
Initiation: The cardholder notices a charge they believe is incorrect and contacts their issuing bank to file a dispute.
Temporary Credit: The bank doesn’t yet know if the dispute is legitimate or a case of friendly fraud. Still, the bank will often provisionally credit the disputed amount back to the cardholder’s account while investigating the dispute.
Communication: The cardholder may need to provide documentation or additional information to support their claim against the merchant. The merchant has a right to fight the dispute.
Resolution: After investigation, if the dispute is resolved in the cardholder's favour, the provisional credit becomes permanent. If not, the provisional credit is reversed, and the charge stands.
When a Merchant Receives a Dispute Notification
Notification: The merchant is notified of the dispute and must gather evidence to support the legitimacy of the charge, such as proof of delivery or service.
Holding Funds: The acquiring bank typically holds the disputed amount from the merchant’s account during the investigation.
Providing Evidence: The merchant submits the required evidence to their bank, which then forwards it to the card issuer.
The merchant can provide many types of evidence in its own defence.
- Signed Receipts
- Proof of Delivery
- Communication Records
- Transaction Logs
- Service Documentation
- Customer Verification
- Photographs or Video
- Terms of Sale
- Customer History
- Contracts or Agreements
The most valuable and compelling information is captured at the time of the transaction. This is why transaction data capture is automated for all but the smallest businesses.
Your dispute defence is damaged if you don’t capture this crucial data in real time.
Resolution: If the dispute is resolved in favour of the merchant, the funds held will be released back to you. If the dispute favours the cardholder, the merchant loses the sales revenue, and their bank may also charge them a fee.
Most banks and processing networks assess additional chargeback fees.
Weakness of the Dispute Process
The dispute process was designed to protect the cardholder from merchant or other fraud.
This puts pressure on the merchant to maintain meticulous transaction and service records, as seen above.
However, the process is increasingly being abused by cardholders and fraudsters. Fraudulent disputes, including friendly fraud, are taking revenue from merchants like you.
Some of the downsides of the dispute process include:
- financial losses.
- chargeback fees.
- increased processing time.
- resource drain.
- management complexity.
- customer relations.
- high standards of proof.
- frequent fraud.
- limited communication.
- arbitrary decisions.
- prejudice against merchants.
- reputational risk.
- lack of control.
- policy variations.
- automation bias against the merchant.
For these reasons—and more—disputes leading to chargebacks are best avoided entirely.
Using ChargebackStop to Avoid Disputes and Chargebacks
Our service, ChargebackStop.com, is dedicated to helping you minimise the chances of entering into a dispute. We prevent 99% of chargebacks by automatically mitigating potential dispute conditions.
Constant Monitoring
We analyse all your transactions electronically in real time. If a potential dispute condition arises, we handle it for you.
Transaction Notifications
You receive immediate transaction notifications. Our platform automates your response and gives you the control to choose from pre-selected options to diffuse the situation.
For example, you may automate a refund to the cardholder if a transaction is below a set price threshold. Or, you may choose another option. You’re in control.
Automatic Transaction Data Capture
We capture and organise the crucial transaction information you’ll need to fight the 1% of chargebacks that can’t be avoided.
Additional Support
Our Dispute Assistant gives you guidance on winning the fight.
Our Refund Policy Generator provides a customised refund policy document to use on your website or in your documentation.
Look up a BIN (Bank Identification Number) or a Merchant Category Code using our custom free tools.
Looking Forward
Never respond to a dispute again.
Sign up for a free demo of our system, or contact us for more help and information.
FAQ: Bank (Credit Card) Dispute Process
What is the timeframe for disputing a charge?
Cardholder: You generally have 60 days from the statement date to dispute a charge.
Merchant: Be prepared to respond promptly when notified of a dispute within this timeframe.
How long does the dispute process typically take?
Cardholder: Depending on case complexity, the process may take several weeks to months.
Merchant: The duration of the dispute process can affect your cash flow, as funds may be held during the investigation.
Is the disputed amount payable during the investigation?
Cardholder: You won’t typically have to pay the disputed amount while it’s under investigation.
Merchant: The disputed amount might be withheld from your payouts until the dispute is resolved.
What types of transactions can be disputed by cardholders and defended by merchants?
Cardholder: Disputes can be about unauthorised charges, non-received goods/services, or incorrect billing.
Merchant: Defend disputes by providing proof of transaction authorisation, delivery receipts, or service documentation.
Can either party appeal the dispute decision?
Cardholder: If the dispute decision is not in your favour, you may request a further review or appeal based on your issuer’s policies.
Merchant: You can appeal or further contest the decision, depending on the rules established by the card networks.