Is Doing a Chargeback Illegal? The Truth Revealed

Is Doing a Chargeback Illegal? The Truth Revealed

 

You might have heard a lot about chargeback (or charge back) in the past few years. It’s no surprise; with the growing popularity of online shopping, more and more people are making purchases online almost every day. But in case you don’t have a clue what a chargeback is, it’s nothing but an authorization given by a cardholder to their bank to reverse charges on their purchases from a specific merchant – usually as a result of dissatisfaction with the product or service. With so many merchants getting burned by consumers who make fraudulent purchases and then ask for their money back, many companies now require customers to agree to something called “chargeback rights” before they will sell them anything. This article explores what chargebacks are and how retailers can protect themselves against this common type of fraud.

What is a chargeback?

Every time you use your credit card, the merchant’s bank charges them a fee for the privilege of accepting your card. This fee is generally a percentage of the amount you’re purchasing – anywhere from 1.5% to 4%. Now, let’s say that you buy $100 worth of products from a retailer, and the fee for them to accept your card is 3%. So, the retailer’s bank receives a $100 transaction fee from your card issuer. But if you decide to dispute the charges and get your money back, your card issuer will subtract that $100 from your account, even though the retailer never got paid. When a cardholder does a chargeback on a purchase, the merchant is responsible for making that money back; otherwise, the merchant’s account with the bank will be hit with a fee. If it happens often enough, the merchant can even be kicked off of their processing network.

Is Doing a Chargeback Illegal? The Truth Revealed

What are the types of chargebacks?

There are two kinds of chargebacks: Legitimate chargebacks and fraudulent chargebacks. Fraudulent chargebacks: This occurs when a customer disputes a legitimate transaction, usually because they have another purchase that they want to get a refund on instead. For example, a cardholder could dispute a transaction because the product didn’t arrive on time or because the item was different from what was advertised. Or, fraudsters might try to steal money from a retailer by initiating a fraudulent chargeback. Fraudulent chargebacks are a big problem for online retailers. In fact, research shows that an overwhelming majority of retailers have reported an increase in chargebacks in recent years. Legitimate chargebacks: These occur when a customer has a genuine reason for requesting a refund, such as receiving poor customer service or a product that doesn’t live up to expectations.

How to respond to a chargeback request?

If you get a chargeback request, you should first try to work it out with the cardholder. If the cardholder doesn’t want to work with you or if he is not responsive, you should try to resolve the issue with the card issuer. The card issuer may want you to submit a written response to clear the dispute. If you think that the chargeback is illegitimate, you can ask for more time to resolve the problem. You might also be able to get the card issuer to decline the chargeback request. But if the chargeback is legitimate, or if you can’t resolve the dispute, you should take action to protect your business. If you want to respond by filing a chargeback, you should carefully consider whether it’s the best option. You have to be careful, though, because while a chargeback might seem like the easiest solution to a dispute, it can have serious consequences for your business.

When is doing a chargeback illegal?

If you initiate a chargeback without a good reason, you could be committing fraud. If the cardholder has a legitimate complaint and you try to get your money back illegally, you will end up hurting your credit score. People who purchase items with a credit card have the right to dispute their purchases. However, cardholders who request chargebacks without a legitimate reason are committing consumer fraud that can be punished with fines or even imprisonment. However, if the cardholder has a good reason for requesting a chargeback, such as receiving a product that doesn’t work or having a legitimate reason for returning an item, the chargeback is 100% legal.

How Does a Chargeback Work?

When consumers initiate a chargeback, they’re contacting their bank and asking for a refund. The cardholder gives the bank information about the purchase (the amount, the date, and the name of the merchant), and the bank contacts the merchant’s bank to see if they approved the transaction. If the merchant’s bank confirms that the sale was legitimate, the consumer gets a “reversal” instead of a refund. The consumer’s bank also takes money from the consumer’s account to pay for the purchase. This can cause the consumer’s account to be overdrawn, which can result in additional fees. The merchant’s bank will then issue a chargeback if the consumer initiated the chargeback improperly. If a consumer initiates a chargeback with a proper reason, the merchant’s bank will issue a “reversal” instead. The merchant is then responsible for paying back the consumer’s bank.

Why Is Doing a Chargeback Illegal?

Chargebacks are meant to be a last resort for consumers, but they’ve become a common way of getting money back when things go wrong. Some retailers require customers to waive their rights to chargebacks as part of the purchase agreement. However, this is illegal in many jurisdictions. In the U.S., the Fair Credit Billing Act (FCBA) says that consumers must be given the option to dispute charges unless merchants can prove that the charges are legitimate. If a merchant doesn’t allow consumers to dispute charges, the merchant must provide a written notice that explains why the charge isn’t eligible for dispute.

How to Process a Chargeback

If you receive a chargeback, it’s important to respond as quickly as possible. Remember, you’ll only have a short amount of time to respond to the request. If the chargeback was initiated by a credit card, send your response to the address listed on the chargeback notice. If the chargeback was initiated by an online payment processor, send your response to the email address or mailing address listed on the notice. If the chargeback notice says that you have 30 days to respond, be sure to send your letter within the time frame specified. If you miss the deadline, the cardholder’s bank may decide to award the disputed funds to the cardholder. Also Do Best SEO

Conclusion

Chargebacks are an unfortunate but common part of doing business. While some are legitimate, others are fraudulent. While it’s important to respond to each chargeback notice, it’s just as important to protect your business from illegitimate chargebacks. You can do this by providing exceptional customer service, keeping strict policies for returns, and following chargeback rules.

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