Chargeback Debt CollectionCan You Send a Disputed Account to a Debt Collection Agency? How Do You Proceed?

Chargeback Debt Collection: Can I Escalate a Credit Card Dispute to a Collection Agency?

When a customer disputes a charge with their bank or credit card company and wins, many business owners assume that’s the end of the road. After all, if the merchant processor already sided with the customer, how could you still pursue payment?

It’s a common question we receive at Fair Capital, and the answer isn’t as black and white as many think.

Let’s break down what really happens, what your rights are, and what you should consider before sending a disputed account to a debt collection agency.

What is a Disputed Account?

A disputed account is a debt that a consumer formally challenges or contests, either by questioning its validity, accuracy, or their obligation to pay it. When a consumer disputes a debt, whether with the original creditor, a collection agency, or through a credit reporting bureau, they're essentially saying “This debt information is incorrect or invalid.”

That sounds similar to a chargeback. But, there is a huge difference.

When a customer files a dispute (or “chargeback”), their credit card issuer temporarily reverses the transaction and investigates the claim. If the bank sides with the customer — often due to insufficient documentation or a slow merchant response — the funds are permanently returned to the customer.

However, the issuer’s decision is not a legal ruling on whether the debt is valid. It’s a banking decision based on card network rules, rather than legal liability.

That’s a crucial distinction. Even if the issuing bank sided with your customer, you may still have a legally valid debt that you can attempt to collect, provided the goods or services were legitimately delivered, of course.

Can You Send a Disputed Account to a Debt Collection Agency?

In most cases, yes, you can. If the underlying obligation is valid — meaning the customer legitimately owes the money — you’re legally permitted to place it with a licensed debt collection agency.

Taking a quick look at Reddit, we see there are numerous examples of this in practice:

Things to Consider Before Escalating Chargebacks to Debt Collection

Before you consider moving to chargeback debt collection, there are some important compliance and practical considerations to keep in mind:

When you send the account to a collection agency, you must clearly note that the consumer has disputed the charge or transaction.

Under the Fair Debt Collection Practices Act (FDCPA), collection agencies are legally obligated to mark such debts as “disputed” when reporting them to the credit bureaus. Failure to disclose this could create compliance issues for both you and the agency.

While it’s legally permissible, collecting on a disputed credit card charge is challenging. Once a consumer “wins” a dispute, they typically believe the matter is settled. From their perspective, the bank already decided in their favor; any follow-up collection effort may feel redundant or unfair.

We’ve seen that the success rate on these types of accounts is significantly lower than standard past-due accounts. However, it’s not impossible, particularly when there’s clear documentation that the product or service was delivered as promised.

A common (and costly) mistake business owners make is assuming they can simply “let the customer win” the dispute and then hand it over to collections. That approach almost never works.

If you fail to respond to a chargeback with supporting documentation, you effectively weaken your case from the start. Even if a debt collection agency later contacts the customer, the customer will point to the dispute outcome as justification for nonpayment.

Bottom line: Always respond to the chargeback through your processor first. If the bank still sides with the customer, then consider sending it to collections; not the other way around.

Not all agencies will take on accounts that were previously disputed through a card processor. Many consider them too risky or low-probability recoveries.

However, if you have an established relationship with a professional debt collection agency that already handles your other accounts, they may agree to take on the case as a courtesy. Agencies often evaluate such files individually, weighing the supporting documentation, communication history, and overall collectability.

The Bottom Line

The short answer is “yes.” You can send a disputed account to a debt collection agency, as long as the debt is legitimate and properly documented. The fact that the issuing bank — and potentially even the card network — sided with the customer does not legally prevent you from trying to collect.

That said, don’t rely on collections as a substitute for responding to disputes. Once a customer wins a chargeback, legal recovery becomes significantly more difficult.