Chargeback

When customers make an online purchase using a credit card, debit card, or an online payment system like PayPal, they are protected against unauthorized payments and vendors who don’t supply the product or supply a faulty product. US law and many other countries allow a customer to apply for a refund from the vendor and the bank or charging agency will be required to facilitate the process. The process of reversing a payment by the authorized payment institution is known as a chargeback.

How Chargebacks Work

Chargeback transactions will usually include a fee and in some cases other penalties. Anyone charging a customer who uses a US financial institution as a method of payment will be subject to the US law for chargeback arbitration. The customer will need to initiate the chargeback process by filing a complaint with their bank and provide reasons for the request. The main reasons for customers requesting a chargeback are usually fraud or unauthorized use of their credit or debit card. In some cases, a customer can request a chargeback if they feel that the vendor has not acted properly in terms of the purchase agreement, either by supplying the wrong product, a faulty product or delayed delivery.

The vendor will usually be required to pay the fees on an initial chargeback. A vendor may request a second chargeback if they can provide reasons why the first chargeback was not warranted. In the case of a second chargeback, the matter will be referred to arbitration and a substantial fee will be charged for this. The additional fee will be charged to the party that is not successful in their claim. In most cases, arbitration finds in favor of the customer and for this reason, vendors seldom challenge a chargeback claim.