Bank Dispute ProcessA Step-by-Step Guide to How Bank Disputes Work

April 1, 2024 | 12 min read

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Bank Dispute Process

In a Nutshell

Bank disputes look different for cardholders than they do for merchants. This article will examine the bank dispute process, including what it is and how it works. We’ll also provide a step-by-step guide to help you navigate the system successfully.

Demystifying the Bank Dispute Process for Cardholders & Merchants

Let’s say you’re a cardholder. You take a look at your statement, and see a transaction you don’t recognize. You panic, assuming you’ve been the victim of fraud, and call your bank to inquire about the situation.

The good news is that you have the option to file a bank dispute. The bank may then issue a chargeback in response.

Chargebacks are a convenient way for cardholders to recover their money in the event of fraud or if a seller didn’t deliver on what they promised. However, the rules and procedures aren’t quite as simple as it may seem at first. For more clarity, let’s take a look at the whole process from start to finish.

What is a Bank Dispute?

Bank Dispute

[noun]/baNGk • di • spyo͞ot/

A bank dispute is the process through which a cardholder rejects fraudulent or inaccurate charges on their credit card statement with their issuing bank. This is also known as a chargeback.

Chargebacks are a means of protecting consumers against fraud. However, banks are expected to investigate dispute claims before initiating chargebacks.

If a cardholder files a bank dispute, the bank will investigate the claim. They will then decide whether the cardholder’s claim is true, and if a chargeback is justified.

Bank Dispute

If the bank can clarify the charge to the cardholder's satisfaction, then the matter is resolved. If not, the disagreement over the transaction is intensified into a chargeback, which poses a greater problem for the business involved.

Learn more about disputes

Steps of the Bank Dispute Process

Bank disputes are usually initiated by a cardholder. There are a few occasions when a bank may file a chargeback on their cardholder’s account without the buyer’s knowledge. These situations are fairly rare, though.

Each step in the bank dispute process is designed to ensure that disputes are handled fairly and thoroughly, respecting the rights and responsibilities of all involved parties. A typical dispute goes as follows:

Step #1 | Identification of the Dispute

The process begins when a discrepancy or an issue with a transaction is identified. This could be anything from an unauthorized charge or a billing error to dissatisfaction with the quality or delivery of goods and services. The party noticing the issue decides it warrants formal attention and prepares to engage with their bank or financial institution.

Step #2 | Dispute Initiation

The next step involves formally initiating the dispute. This usually means contacting the bank and providing them with all relevant details about the transaction in question. It’s important to lay all the cards on the table; what the issue is, any evidence to support the claim, and what outcome is being sought.

Step #3 | Documentation & Evidence Gathering

Once the dispute is in motion, the bank may request additional documentation or evidence. This could include receipts, contracts, email correspondence, or any other records that can shed light on the transaction. It's a bit like gathering clues. Every piece of information helps the bank understand the situation better.

Step #4 | Bank Review

With all the information in hand, the bank then reviews the dispute. This step involves analyzing the details of the transaction, the evidence provided, and the policies governing such disputes. The bank acts as the detective here, piecing together the story to make an informed decision.

Step #5 | Decision Making

After a thorough review, the bank makes a decision on the dispute. This could involve siding with the initiator of the dispute, resulting in a reversal of the transaction (a chargeback). Or, the bank could determine that the transaction was valid, in which case the dispute would be resolved without alteration to the transaction.

Step #6 | Notification & Resolution

The final step is all about communication. The bank notifies all involved parties of the decision and the reasons behind it. If the dispute is resolved in favor of the initiator, the necessary adjustments are made to the account(s) involved. This could mean crediting back the disputed amount or other forms of rectification.

Step #7 | Possible Escalation

In some cases, the decision made by the bank might not be the end of the road. If either party disagrees with the outcome, there may be options for escalation or further review. It depends on the bank’s policies and the legal framework governing such disputes.

Bank Disputes vs. Refunds

From a customer’s perspective, there doesn’t seem to be much difference between refunds and disputes. The two are very different processes, though.

Traditional refunds come directly from the merchant. With disputes, though, the bank pays the consumer upfront. They then claw back the transaction amount from the merchant’s account. Comparing the two actions side-by-side shows how chargebacks are much harder on the merchant.


  • Customer deals directly with merchant
  • Goods returned to seller for possible resell
  • Merchant often recovers interchange fee
  • No damage to merchant’s reputation
  • Typically processed within days
  • Merchant knows when funds are dispersed


  • Customer complains to the bank
  • No incentive to return goods to merchant
  • Merchant hit with additional chargeback fees
  • Hurts merchant’s chargeback-to-transaction ratio
  • May take months to resolve
  • Funds taken from merchant with no warning

Valid Reasons for a Bank Dispute

It’s always preferable for cardholders to try and work out solutions with the merchant directly. This will usually lead to faster resolution. That said, it’s important to understand when a bank dispute is justified, in case no satisfactory solution can be reached:

Fraudulent or Unauthorized Charges

This category is one of the most straightforward reasons for a dispute. It covers situations in which a cardholder's payment card is used without their consent. This can occur due to the card being lost or stolen, or if the card details are compromised through other means. If a cardholder notices transactions they did not approve or recognize, this constitutes a valid reason to contact their bank and dispute the charge.

Billing Errors

Billing errors encompass a range of potential issues. Duplicate charges, where the cardholder is billed more than once for the same transaction, as well as situations in which the charged amount differs from the agreed-upon price or the receipt, are examples. The same applies for charges for canceled subscriptions or services, indicating a failure to honor a cancellation request.

Quality of Goods or Services

Disputes can arise from dissatisfaction with the quality of goods or services received. This is slightly more complex, as it often requires the cardholder to prove that the goods or services were significantly not as described or were fundamentally flawed. Examples include receiving a defective product, a service not rendered as agreed, or a product that does not match its description online or in marketing materials.

Failure to Deliver Goods or Services

This is applicable when a merchant fails to deliver the purchased goods or services within the timeframe promised. It could also apply if a merchant fails to deliver goods at all; if a transaction turns out to be a rug pull, then the cardholder could be justified in filing a dispute. Remember that the cardholder must have attempted to resolve the issue directly with the merchant before escalating to a dispute, though.

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Invalid Reasons to File a Bank Dispute

None of the above stops invalid chargebacks from being filed, of course. Cardholders may claim that one of the conditions applies even if it doesn’t. This is a practice called “friendly fraud.”

Friendly fraud is not always intentional. Many circumstances could lead to a cardholder accidentally disputing a payment without a valid reason. For example:

  • The cardholder doesn’t recognize the merchant’s billing descriptor.
  • The cardholder forgot about a recurring payment.
  • The cardholder requested a refund, but it took longer than expected.
  • The cardholder doesn’t know the difference between chargebacks and refunds.
  • The cardholder simply forgot about the purchase.
  • The cardholder inquired about a charge, and the bank initiated a dispute on their behalf.

On the other hand, some payment disputes are deliberate chargeback abuse. Some motives for deliberate false disputes include:

  • Wanting to avoid a restocking fee
  • Experiencing “buyer’s remorse”
  • Assuming a dispute will be easier than a return
  • Discovering that the return time limit expired
  • The buyer simply wanted to “get something for free”

It’s important to note that, from the merchant’s perspective, it really doesn’t matter whether friendly fraud is accidental or deliberate. The negative effects are the same.

Learn more about friendly fraud

Merchant Response Process for Bank Disputes

The bank dispute process is slightly more complicated for merchants than for cardholders. 

It can directly impact a merchant’s revenue and affect their relationship with payment processors and banks. But, if the merchant wishes to respond to a dispute, there is a set procedure for this as well. Here's how the process typically unfolds:

Step #1 | Notification of Dispute

The process kicks off for a merchant when they receive a notification from their payment processor or acquiring bank that a customer has disputed a transaction. This notification is the merchant's first indication that they need to gather evidence and prepare a response. It will detail the reason for the dispute and provide a deadline by which the merchant must respond.

Step #2 | Review of the Dispute

Upon receiving notification, the merchant must carefully review the details of the disputed transaction. This involves looking into their records to understand the nature of the purchase, the customer's claims, and any relevant interactions with the customer. This step is crucial for determining the validity of the dispute from the merchant's standpoint and deciding on the course of action.

Step #3 | Gathering Evidence

If the merchant believes the dispute is unwarranted, they must gather compelling evidence to support their case. This evidence can include sales receipts, order confirmations, proof of delivery, records of communication with the customer, and any other documentation that can prove the transaction was legitimate and the product or service was delivered as agreed.

Step #4 | Submitting a Response

Once the evidence is compiled, the merchant submits a formal response to the dispute through their payment processor or bank. This response must include a detailed explanation of why the dispute should be ruled in their favor, supported by the evidence gathered. The merchant's goal here is to demonstrate that the transaction was valid and fulfilled according to the terms agreed upon by the customer.

Step #5 | Bank Review & Decision

This review process can take some time, as it involves a careful examination of the transaction details, the dispute reason, and the documentation submitted. Ultimately, the bank will make a decision either to uphold the dispute, or to reject it, in which case the funds will be returned to the merchant and the bank dispute will be closed.


If the merchant strongly disagrees with the decision and has additional evidence to support their case, they may opt to escalate to arbitration. However, this step will involve additional costs, and is not guaranteed to change the outcome.

Throughout this process, merchants must act promptly and provide comprehensive evidence to support their case. It's also beneficial for merchants to understand the common reasons for disputes and implement practices to minimize them, such as clear communication with customers, detailed descriptions of goods and services, and fraud prevention measures.

Problems With the Bank Dispute Process

Abuse of the bank dispute process is a fast-growing problem. No one party in the process can resolve the issue. Merchants, cardholders, banks, and card networks need to work together to close loopholes in the system.

Education is key. Consumers who understand the full picture are less likely to make simple mistakes that result in chargebacks. For merchants, knowing the true sources of chargebacks can help stop many disputes before they start. Unfortunately, that information can be hard to come by.

The experts at Chargebacks911® understand this. That’s why we offer the most comprehensive dispute management services and products available. Our transparent, end-to-end solutions go beyond prevention to revenue recovery and future growth.

Whatever you need to fight disputes, we can help. Contact us today for a free demo.


How long does it take for a bank to process a dispute?

The bank dispute process typically takes between 30 to 90 days to resolve (from the cardholder’s perspective), depending on the complexity of the dispute and the specific policies of the bank and card network in question. However, some cases may be resolved more quickly or take longer if they require extensive review or additional documentation.

What do banks do when you dispute?

When you initiate a dispute, banks review the transaction details, evaluate the evidence provided by both parties and decide whether to reverse the transaction or uphold it based on their findings. This process involves assessing the validity of the claim against the bank's policies and the rules of the card network.

What do banks investigate when you dispute a charge?

Banks investigate the nature of the disputed charge, examining transaction records, merchant information, and any related communications or documentation provided by the customer and merchant to determine if the charge was authorized and accurately processed. This includes verifying the legitimacy of the transaction and assessing compliance with the terms of service.

Why would a bank deny a dispute?

A bank might deny a dispute if their investigation finds the transaction was authorized, correctly processed, or falls within the agreed terms of service, indicating no error or fraud occurred. Additionally, insufficient evidence provided by the disputing party to support their claim can also lead to denial.

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