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.
The Purpose of Chargebacks
As a form of consumer protection, the chargeback process is naturally weighted towards the cardholder.
- One of the main reasons behind chargeback request is customer dissatisfaction. Unauthorised hidden
charges, goods or services, that were not fit for purpose or were not delivered/supplied within a specific
timeframe. The threat of the forced chargeback of funds keeps many merchants focused on providing
exceptional customer service.
- Chargebacks also serve as a deterrent to merchants who might be tempted to sell poor quality products or
services, or mislead the customer on their quality. Cardholders can claim the products or services were not
as described and Customers can’t be expected to pay for something that was never delivered.
- Criminal fraud is ever growing in today’s society. Many cardholders are victims to unauthorised
transactions have been made on their account. Filing chargebacks on fraudulent card transactions can help
innocent victims recoup their money. From a merchants perspective, they should be aware of the growing
threat of friendly fraud. View our additional guides to Chargebacks, Friendly Fraud and Chargeback Reason Codes.