What is Chargeback?


What does chargeback mean?

This is the pulling of funds from a merchant account back to the issuer's account. A chargeback usually occurs when there has been a dispute regarding a purchase. Chargebacks are meant as consumer protection from fraudulent activity by merchants or other individuals.

A chargeback can occur for transactions on credit cards, debit cards or bank payments. There are a number of reasons that chargebacks can be initiated and approved. You can also consider a chargeback to be a type of refund since it is the return of funds from a prior purchase. A chargeback is different from a voided charge because the voided charge is one that has not been fully processed, while a chargeback has been fully processed and settled. Because of this a chargeback can often require several business days to complete as they must be processed through several entities.

In the U.S. chargeback reversals for debit cards are governed by Regulation E of the Electronic Fund Transfer Act. Chargeback reversals for credit cards are governed by Regulation Z of the Truth in Lending Act.

There are a variety of reasons for charges to be disputed. The customer may simply wish to return the item, or they may have received a damaged or faulty item. They may have been charged for something they never received, or they could have been double charged by the merchant in error. Technical errors may have caused the charge, or the cardholders card information may have been stolen and used without their authorization.

The most common reason for chargebacks is that the customer has simply decided to return the item. If this return is within the merchant’s allowable return period, the merchant can initiate the chargeback as a refund. Other types of chargebacks become far more complex. Fraudulent charges typically find solid support from banks, especially in cases where a cardholders card number has been compromised.

In the case of chargeback transactions that have not been initiated by the merchant, the merchant acquiring bank will often charge the merchant a fee, which would have been detailed in the merchant account agreement. These fees are usually charged on each chargeback transaction and are meant to cover the network processing fees. Some acquiring banks will charge additional fees as penalties for chargebacks.

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