You already know you’re living in a very modern age. All your purchases are several clicks away, but are your purchases safe? The ultimate tool the consumer has is the chargeback. That’s why I’m going to tell you way too much information about how chargebacks work.
A chargeback is a return of money to the buyer. This is commonly done through a credit card company and PayPal. The chargeback can be very useful to prevent consumers from getting scammed, but it can be abused. Let’s dig into the details.
If you prefer a super interesting story of a few chargeback examples, check out this post. It talks about my experience doing a visa chargeback for some gift card I bought and a PayPal chargeback for an apartment I was renting in Taiwan. For the government level super technical details, you can find them on the FTC website. This post is an easier to read guide.
Have you been scammed?
Money can turn people evil. That’s why there are scammers trying to take money from honest people. In the event that you happen to do business with an scammer company, you can report them to the FTC. Here’s a few common scenarios of scams:
- Identity Theft: Getting bills for things you didn’t buy
- Won a sweepstakes but had to wire money to cover the taxes
- Free trial offer but then get charged money
- Job scams where they send you money and then you forward a smaller amount money while keeping the difference
- The IRS called you to pay them back or they’ll send the police.
For all of these scams, make sure to research the company in advance. A big red flag is if you have to:
- Wire money
- Send bitcoin or other cryptocurrency
- Pay with gift cards
How do chargebacks work?
What is a chargeback?
Let’s say you make a purchase online and the product you receive isn’t what you expected. You attempt to return the item but they do not accept returns. Of course you may feel cheated by the company so you can use a chargeback only IF you made the purchase with a credit card or PayPal.
Credit cards and PayPal have a lot of protections for consumers. I would avoid using Bitcoin or a debit card when making purchases online because those offer no protection.
What happens when you do a chargeback?
An investigation is started with your credit card company or PayPal. They put the transferred funds on hold and try to get more details on the reason why you are filing a chargeback. Be sure to have as much documentation as ready since it may vary.
During the investigation process, your credit card company or PayPal reach out to the seller and get their side of the story. This is a mediation process and it may also help to have a direct conversation with the seller and buyer.
Additionally, you the consumer, will be responsible for finance charges on the funds being held during the dispute process. So let’s say you are disputing a $1,000 charge, if the investigation takes a 2 months, you will have to pay finance charges on your account. This may vary depending on the bank. I had a dispute with Chase Bank where they credited me the money immediately.
Make sure to at least make any minimum payments that are charged to you by your credit card company. Any late payments will be considered delinquent and will cause your credit score to drop.
How long do you have to file a chargeback?
For credit cards and PayPal, you have 120 days to file a claim. Be very careful when purchasing items or services online that say they’ll take more than 4 months to complete a project. They might just run off with your money. Additionally, these chargebacks are only possible with some debit cards, all credit cards, and PayPal.
How long does a chargeback take?
Depending on the complexity of the case, it can be as fast as a day to get your money back. In more extreme cases it can take months.
Can you get a chargeback on a debit card?
Yes, you can definitely file a dispute on a debit card. Although it may take up to a few months to get a decision, you will be missing that money from your account. That’s why I prefer using credit cards because you have a little more protection on your money.
Can a chargeback be denied?
Chargebacks can be denied depending on the circumstances. When you start a chargeback a case opens and someone from your bank or PayPal begin an investigation on the transaction.
The investigation turns into a mini trial where you have to explain yourself and what evidence do you have. Be sure to document all your conversations, emails and any evidence you may have leading up to the chargeback process.
How much is a chargeback fee?
For the consumer, chargebacks do not cost any money. That fee is passed on to the seller. If the consumer wins a dispute, the money is taken from the seller’s account and returned to the buyer. The cost of this reversal is passed on to the seller which can be a flat fee from $20 to $50 per transaction. Obviously, that’s a lot of money and most seller’s will try to be as honest as they can to avoid these fees.
Before making a claim, make sure you try to work things out with the seller first. They lose more money than just giving you a refund because of the fee. I only feel bad if it’s an actual small business. My personal experience was with Staples.
Can you go to jail for a chargeback?
No, not if it’s a normal transaction. If you place a chargeback against an illegal transaction, then probably. Just stop doing illegal activities.
Why are chargebacks bad?
Chargebacks aren’t necessarily bad, but they are inconvenient. Most people don’t want to intentionally screw someone over, but it happens from time to time. Chargebacks are the result of someone wanting a refund and it not being possible.
Does a chargeback hurt your credit?
Chargebacks are part of your financial transactions and have no actual impact on your credit. It can only hurt your credit if you’re not paying your credit card on time or if you’re going over your credit card utilization.
Even if you have a dispute pending on your account, you can still use your credit card as usual.
Why do chargebacks occur?
Let’s say you bought an item or paid for a service. What you paid for wasn’t to an acceptable level of what you expected. You attempt to get a refund but are denied. Before attempting to chargeback a transaction, always try to talk out the issue between the buyer and seller. If you cannot come to a reasonable agreement, the only thing you can do at this point is to file a chargeback.
How do you win a chargeback?
Hey, thanks for asking! This is actually one of the most important things you should actually know. Sometimes the decision of a dispute can’t be reversed once it’s made, so you should know what you’re getting into.
First off, you need to TRY to get a refund. Talk things though with the seller. If that doesn’t work and you believe you deserve a refund, start the chargeback process. Take a look at all the conditions of the purchase or service agreement before filing a dispute to make sure you have a case.
Gather ALL relevant documentation/evidence so you can be ready provide it to your bank or to PayPal. Then file a dispute for the transaction by directly contacting your bank or PayPal. They’ll need to know which transaction it is on your account and then they’ll need the specific details about why you deserve the transaction to be reversed.
This is where you’ll need to prove your case. It’s kind of like an informal trial. You’ll explain what you were purchasing and the expectations, what was delivered, your attempt to resolve it with the seller and the evidence you’ve collected.
If you do all this, you’ll save A LOT of time in the chargeback process. Depending on the severity of the case and the purchase amount, it can be the same day or up to a few months before the dispute is resolved.
How many chargebacks are you allowed?
I don’t think there is a specific number with any of the banks. For each dispute they will look into the case fairly. But if you have a history of repeating the exact same dispute, questions will be asked. Like, is this person abusing the chargeback system?
After filing the same dispute repeatedly, you chances of winning may drop significantly due to suspected abuse. Don’t consider how many disputes you are allowed, consider if you’re doing the right thing.
How do you prevent chargebacks?
Whenever making a purchase, make sure you know what you are getting. Some sales can easily be misleading that’s why going with reputable sellers is normally worth the price. Personally, I’ve messed up in the past and have had to file several chargebacks that I won.
The chargeback is the last line of defense for the consumer when making any type of purchase. You have up to 120 days after the transaction to file a dispute. To this point, be careful when making any transaction that will take 4 months or longer. Basically your money might just disappear.
Before even filing a dispute, you should contact the seller to try and resolve any issues you have. In the event that you can’t come up with a resolution, you can always file a dispute.
Chargebacks have saved me $2000 on a bad gift card purchase and even more money when renting a low quality apartment. It’s absolutely an amazing tool that you should be aware of.
If this has been helpful, please share this content so you’re friends and family aren’t taken advantage of financially by scrupulous sellers.