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The History of Chargebacks


The History of Chargebacks

A chargeback is the process of returning funds to a cardholder after a credit card transaction has taken place. The funds are forcibly removed from the merchant’s account by the issuing bank. The credit card chargeback was initiated as an act of consumer protection. This form of government regulation is aimed at protecting the rights of consumers – as opposed to the earning potential of businesses.

International Chargebacks

Most countries have their own form of consumer protection, and chargeback laws vary by region. While the fine print may not be universal, the concept is; credit card holders have the right to file dispute against transactions of their choice.

Chargebacks in the USA

Credit card chargebacks were included in the 1968 United States federal law called the Truth in Lending Act (Regulation Z). Debit card holders were awarded reversal rights courtesy of Jimmy Carter’s 1978 Electronic Fund Transfer Act (Regulation E).

Rules and Regulations

Both Visa and MasterCard have thorough rules and regulations regarding the chargeback process. In addition to printed publications, this information is also available online.

In theory, these regulations form an efficient system for ruling on credit card transaction disputes. The primary form of evidence in these cases is written documentation. In general, the burden of proof lies with the merchant.

The credit card chargeback regulations also provide stipulations for arbitration. In addition to the necessary steps associated with this process, the governing rules also establish the arbitration fees ($250, paid by the losing party).

Reasons for Filing a Chargeback

The acceptable reasons for filing a chargeback include:

  • Unsatisfactory products or services
  • Poor customer service
  • Billing error (charging the card more than once, failing to terminate a reoccurring transaction)
  • Undelivered product
  • Fraud (unauthorized charges)

Unfortunately, over the years, the chargeback system has taken a turn for the worse. Many cardholders use the process in a manner other than originally intended. Today, it is common for cardholders to engage in friendly fraud.

Friendly fraud can include a variety of dishonest behavior. For example, a cardholder might file a chargeback simply because of buyers’ remorse. He or she might claim the product was faulty when, in reality, it was of acceptable quality. Other times, cardholders claim they never received the product when in fact, they did.

The Decline of Chargebacks

While the credit card chargeback is still present in the world of business (and always will be), its prevalence has declined somewhat. Merchants are taking more precautions against potentially fraudulent behavior. They are using helpful tools provided by the issuing banks and the credit card processors to identify and block fraud.

The assistance of chargeback management firms has also helped reduce the number of chargebacks. Not only can firms like Chargebacks911 help improve customer service and prevent fraud, they can also help fight chargebacks that have been filed.