Credit card disputes can arise for a number of underlying reasons ranging from billing errors to fraudulent activities. The dispute process itself can be quite complex, and understanding the baseline of how credit card companies legally resolve these disputes can be enormously beneficial to business owners and operators. Credit card disputes can come with huge penalties for businesses including chargebacks, funding holds, account suspensions, and even merchant account terminations.
While each case will be considered individually, today we will review some broad strokes on how credit card companies and the legal system work to resolve credit card disputes by examining how customers can file a dispute, exploring the Fair Credit Billing Act, and finally how small businesses can deal with such disputes in an appropriate manner.
How Customers can Dispute a Credit Card Charge
Most of us have looked at a credit card statement and been surprised. Whether that surprise came from forgetting that we made a $200 Amazon purchase at 1 am or whether that surprise came from a fraudulent charge is an entirely different story. In order for customers to be eligible for a refund, one of the following must be true:
The purchase was fraudulent or unauthorized. This is relatively straightforward in theory, but sometimes difficult to prove. Credit card issuers will attempt to identify and rectify fraudulent or unauthorized purchases themselves. Customers who were the victims of fraud should contact their credit card company directly.
The purchase contains a billing error. The federal government has granted customers the right to dispute credit card purchases for any of the following billing errors:
Numerical errors/incorrect numbers
Incorrect dates, purchase amounts, unit amounts
Failure to properly post payments, returns, or other account credits
Failure to properly bill for services rendered
“Charges for which you ask for an explanation or written proof of purchase, along with a claimed error or request for clarification”
The purchase ended in services not rendered or services which were unsatisfactory. Last but not least, credit card purchases may be disputed under the Fair Credit Billing Act of 1974 if the customer feels that they did not receive the agreed-upon goods or services for which they paid. More on this below.
Understanding the Fair Credit Billing Act of 1974
The Fair Credit Billing Act was enacted in 1974 to protect consumers from illegal or unfair credit billing behaviors. According to the Federal Trade Commission: “The law applies to “open-end” credit accounts, like credit cards, and revolving charge accounts, like department store accounts. It doesn’t cover installment contracts — loans or extensions of credit you repay on a fixed schedule.” It is important to understand that while not all disputes are eligible for claims under the Fair Credit Billing Act, it is a good baseline to understand how many credit card disputes are settled.
The primary concern of the Fair Credit Billing Act is to settle disputes regarding billing errors. Refer to the list in the above section for an idea of what might qualify as a “billing error” dispute. It is important to understand that customers may not collect disputed payments during the investigation, but they are able to hold the disputed amount against your credit limit. There are three basic outcomes to any investigation:
The dispute is valid in its entirety: the creditor must make the necessary corrections to the account, credit the customer, and must remove any related fees or charges which were caused or related to the error.
The dispute is valid partially: the creditor must make the necessary corrections and send a written explanation to the consumer. The creditor must provide updated information on accurate amounts due.
The dispute is found to be invalid: the consumer becomes responsible for paying the amount owed. The consumer must pay the original charges plus any fees or charges which were incurred in the interim.
Small Businesses Deal with Credit Card Disputes
When consumers have a credit card purchase dispute with a small business, they have the right to withhold payments and work with their credit card issuer to resolve said dispute. From the perspective of a small business, it is important to understand that just because a customer has filed a dispute does not mean that your merchant account or your standing will take a hit. An investigation must be performed to determine whether the credit card purchase was illegal or irregular in any of the ways listed above in this article.
The best way for small businesses to deal with credit card disputes is to be proactive. Keeping tight books that include thorough documentation of purchase details, accepting credit card payments within processor protocols, providing clear receipts/bills, and making sure your employees are well trained are all great ways to avoid credit card disputes. And when disputes may arise, all of these methods make it far more likely that the decision will go in your favor.
True Merchant Helps Protect Small Business from Credit Card Disputes
At True Merchant, we believe in making payment processing as straightforward as possible. That starts with one of our complimentary rate reviews for small businesses. This can be done for businesses just getting started or those who are looking for a change. One of our qualified payment processing professionals will work with you to identify what pricing options best fit your needs and to walk you through the processing fees, fee structure, and how we can best serve you!
Our experienced team offers a wide range of services including credit card payments, debit card payments, NFC payments, payment processing hardware, and much more. To learn more, give us a call or email today so we can discuss how exactly True Merchant can help your business!