Chargeback


A chargeback is the reversal of a charge on the bank or credit account of a consumer.

This reversal is usually initiated by the account holder and always executed by the financial institution who facilitated the original charge. 

United States customers are granted chargeback rights on credit and debit accounts, as stipulated by the Truth in Lending Act and the Electronic Fund Transfer Act, respectively.


Factors Driving Chargeback Rules

There are two main reasons for chargebacks and their presence in U.S. financial law:

To incentivize merchants and businesses to provide quality products and services, chargeback/refunds requirements were established.

The underlying viewpoint is that merchants who do not maintain good business practices will naturally be subject to customer complaints and legally enforced chargebacks.

To protect United States consumers from identity theft and fraudulent transactions.

A bank is required to investigate a fraudulent charge at the request of an account holder, and if the charge is found to be unauthorized, it must force a chargeback.

The legislative provisions for chargebacks also have the potential for abuse. Some account holders engage in "friendly fraud," where a chargeback is claimed under false pretenses.

Because of this and other possible scenarios, chargeback disputes are subject to a detailed arbitration process which is available for public review. 



Chargeback Life Cycle

Chargeback Life CycleImage courtesy of UniBul Credit Card Blog



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