Credit Card Dispute Resolution: Guide for Cardholders and Merchants

Few things are worse for a merchant than receiving the notification of a transaction dispute. For them, this means that they are going to lose a sale as well as a customer. On top of that, they might also get dragged into a chargeback process. So knowing about credit card dispute resolution is very important for them. It helps merchants and cardholders understand the process and go through it more smoothly.

In this guide, we will go over everything related to credit card disputes so that everyone involved knows what credit card dispute resolution looks like and what they can do if ever faced with such a situation.

What Is a Credit Card Dispute?

A credit card dispute can be understood as a payment reversal. Unlike regular refunds the merchant offers directly to a customer, a dispute involves the customer’s issuing bank. The customer contacts their bank and tells them that a particular transaction is not authorized or that they want a refund. The bank takes their claims, reviews them, and decides if a credit card dispute is the right course of action. That, in essence, is what this term means. There are many reasons for such a claim and various steps in the process.

How Do Credit Card Disputes Work?

The easiest way to understand this type of dispute is to consider it an insurance policy against fraud designed for cardholders. Also known as chargebacks, they ensure that customers do not get charged for a payment they haven’t authorized. This is particularly helpful if a card has been stolen or someone has taken down card details and is trying to make a purchase.

One important thing to know about a credit card dispute is that a chargeback is not the same as a refund, even though it involves a refund. In the case of a refund, the customer contacts the seller directly, and they agree that a refund should be made. As a result, the merchant does not lose any reputation in this process and does not incur additional charges.

On the other hand, credit card disputes are initiated by the cardholder’s bank. The cardholder contacts the bank directly, and the bank handles the whole process. The merchant loses the transaction money and often pays hefty chargeback fees. After losing credit card disputes, the business loses its reputation and stands to lose its license.

While a refund can take as little as a day to process, credit card disputes are another story. There are many steps involved in this process, so let’s review them.

Credit Card Dispute Process

The credit card dispute process can be pretty long, depending on how many people are involved and what kind of evidence is submitted to the issuing bank. Most credit card disputes follow these steps:

First Dispute Is Made

The credit card dispute process starts when a customer challenges one or more transactions by getting in touch with the issuing bank. In the case of multiple challenged transactions, more than one chargeback may be issued to the merchant.

Provision Refund Is Made

The issuing bank then offers a conditional refund to the customer. A reason code that signifies the reason for the claim is then sent to the acquiring bank.

Chargeback Is Issued

The acquiring bank debits the transaction amount from the merchant’s account, which the issuing bank then recoups. Other than the original transaction fees, the merchant also pays additional fees.

Merchant Makes a Call

When the merchant receives information about the chargeback, they can decide to accept it, which ends the credit card dispute process. On the other hand, if they feel the claim is illegitimate or a case of friendly fraud, they can notify the issuing bank that they want to fight the claim.

Representment of Evidence

The merchant builds a response for the bank, including relevant evidence and documents like a letter of rebuttal. This package is then sent to the bank.

Bank Reviews the Case

The bank reviews all of the information sent by the seller. If it rules in favor of the merchant, the original transaction is charged to the cardholder again. If it rules against the merchant, the seller loses the money debited from their account. Sometimes, a second chargeback may be filed immediately for a different reason code, starting the process from scratch.

Parties Enter Arbitration

If one of the parties disagrees with the resolution offered by the bank, they can ask the card network to step in and take over the case. However, the decision issued by the card network in the case is final and cannot be changed.

What Does the VISA Credit Card Dispute Process Look Like?

The VISA credit card dispute process has undergone plenty of changes after the VISA Claims Resolution was introduced in 2018. They updated their reason codes and introduced two separate workflows – Allocation and Collaboration – based on different categories of credit card disputes.

The VISA credit card dispute process follows the general process of credit card disputes mentioned above. The card network steps in when arbitration is required. Here’s a summary of what the process looks like:

1. The cardholder challenges a transaction.
2. The issuing bank sends a chargeback to the merchant’s card processor.
3. The information is relayed to the merchant.
4. The merchant either accepts the dispute or decides to fight it.
5. If the seller challenges the claim, then supporting documentation from their side is sent to the issuing bank.
6. The bank reviews the information and decides in favor of the cardholder. It then files a second chargeback known as pre-arbitration.
7. The seller reviews the information and either accepts the decision or not.
8. If not, then the seller appeals to the card network.
9. VISA then steps in and makes a final decision on the case.

What Does the Mastercard Credit Card Dispute Process Look Like?

The Mastercard credit card dispute process also underwent some changes recently when the Mastercard Dispute Resolution initiative was rolled out. The Mastercard credit card dispute process is almost identical to that of VISA. Here is a quick breakdown of Mastercard credit card disputes:

1. First, the seller challenges a transaction.
2. Then, the bank issues a chargeback to the merchant.
3. If the seller accepts, the process essentially ends. If they don’t, a set of documents is sent to the bank as evidence.
4. Finally, the bank makes a decision. If it rules against the seller, the seller can appeal to Mastercard.
5. Mastercard then takes over the case and makes a final ruling.

When Can I File Credit Card Disputes?

A lot of customers don’t know the rule relating to when they are eligible for claiming a chargeback. It is imperative to know this so that you can file for credit card disputes correctly and not unknowingly engage in friendly fraud. There are two main cases in which you can challenge a transaction:

Merchant Error

A merchant error is one of the most common reasons people initiate a credit card dispute. For example, if you placed an order with a seller and the product did not arrive as advertised, that is deemed a merchant error. You should first contact the merchant directly and try to resolve the issue with them. If they are unresponsive or refuse to fix the problem, you can ask your bank to issue a chargeback.

Criminal Fraud

If you see a transaction on your statement that you don’t recognize and that hasn’t been made by a family member, you can ask your bank to look into it. The bank will examine the charge and determine if it is fraudulent. In this case, issuing a chargeback to the seller is also legal because the merchant should have strong enough payment protocols to avoid such orders.

When Am I Not Eligible to Make a Dispute?

Many credit card disputes are made illegally. These are known as cases of friendly fraud, and you should always avoid doing that. That is why it is crucial to know the instances in which you are not legally eligible to claim a chargeback. Here are some common reasons that lead to customers committing friendly fraud:

• You bought an item but didn’t like it after receiving it. If the merchant allows returns, you should contact them directly. But if not, then you are not eligible for disputing that transaction.
• You don’t want an item but also don’t want to pay the shipping, restocking, or handling fees associated with a return.
• You misunderstood the delivery schedule and didn’t want to wait anymore for your order.
• You simply don’t recognize or remember the transaction you or a family member has made on your bank statement.
• You find the return process offered by the merchant lengthy.

Always remember to dispute a charge only when you are eligible to do so and you have already tried resolving the issue with the merchant first. Starting disputes should always be the last resort, as it is a very long process that can ruin someone’s business reputation and cost them a lot of money.

Do Cardholders Pay For Credit Card Disputes?

In the case of legitimate claims, the cardholders don’t have to pay anything. However, if their information is false or their claim is illegal, they will lose the money they wanted to receive as a refund. On top of that, they can also lose some of their bank account privileges. That is why it is paramount that you only ask for a chargeback when it is a legal right and not carelessly.

Banks may also hit you with penalties in the case of friendly fraud done on purpose. You can also get blacklisted by the seller. If you keep doing the same, your bank may freeze your account.

Can Merchants Win Credit Card Disputes?

Yes, if the customer makes an illegitimate claim, and the seller has all the necessary evidence to prove their side to the issuing bank, they can win credit card disputes. When a merchant enters representment, it is up to them to present their case to the bank. For this, they must be sure that the cardholder’s claim is not a result of a fraudulent transaction or merchant error. If your response to the bank contains relevant transaction details and can prove that you have done nothing wrong, you can win the case.

Can Merchants Prevent Credit Card Disputes?

Yes! There are many things merchants can do to ensure that they receive the least number of credit card disputes. Here are some general things they can do:

• Offer excellent customer service so customers can get in touch with them quickly to resolve issues.
• Use secure payment protocols and ask for sensitive information like ZIP and CVV codes to avoid fraudulent transactions.
• Be clear about their policies, including shipping information, returns, refunds, etc.
• Be clear about product descriptions, so customers know exactly what to expect.

These are just some basic things a seller can do to avoid chargebacks. By making it easy for customers to get in contact when there’s an issue, such cases can be avoided, and issues can be resolved directly and quickly.

Ask Chargebackhit for Help

If you’re a merchant and wish to maintain your ROI and reputation, then Chargebackhit can help you do all that and more. We are a chargeback prevention and resolution company that utilizes tools like Verifi and Ethoca Alerts to ensure that merchants are aware of any disputes coming their way before it’s too late. In addition, we make prevention of such issues possible by implementing tools like Consumer Clarity and Order Insight that automatically transmit data to the relevant authorities in real-time when needed.

For resolution purposes, Chargebackhit offers an automatic resolution that doesn’t require merchant interaction. For example, in the case of Verifi RDR disputes, the process goes through a decision engine for automatic resolution. In contrast, the process goes through a seller-directed resolution for other disputes.

With expertise in friendly fraud prevention and resolution, Chargebackhit can help decrease the number of chargebacks you face and increase your win rate in cases that end up being filed. Contact our company’s experts today to find out how and why having us by your side is the right thing for your business.