Chargebacks Explained: Their Purpose and Impact on Businesses

Chargebacks are a form of consumer protection for credit card holders, introduced as part of The Fair Credit Billing Act of 1974.

Essentially, a chargeback voids a card transaction, withdrawing funds that were previously deposited into the merchant’s bank account and applying a credit to the cardholder. Chargebacks are normally used to dispute a card transaction and secure a refund for the cardholder.

The cardholder, rather than contacting the business for a refund, may go above the merchant’s head and asks the bank to forcibly remove funds from the business’s bank account. If the bank feels the cardholder’s request is valid, the funds will be removed from the merchant’s account and returned to the cardholder.

You can read more about the process and how they effect your business by clicking here.