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Debit Card Disputes

Debit Card Dispute

How Debit Card Disputes Affect Both Cardholders & Merchants

Suppose you’re a cardholder trying to get your money back after a purchase. You try to contact the merchant…but they won’t return your emails or answer your calls. You’re at the end of your rope. So, you contact the banks and say you want to dispute the charge.

Conversely, let’s say you’re a merchant. You open your mail one day to discover a cardholder has filed a dispute against you for an item you know the cardholder received.

How can these situations be resolved?

This article will explain what debit card disputes are and how they differ from credit card disputes. We’ll also see how debit card disputes affect cardholders and merchants, and how both parties can navigate the process for faster, fairer resolution.

What is a Debit Card Dispute?

Debit Card Dispute

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A debit card dispute occurs when a cardholder contacts their issuing bank and disputes the validity of a debit card charge. The cardholder does this, in theory, because there is some problem with the transaction which they are unable to resolve by working with the merchant directly.

If the merchant does not respond to a cardholder’s attempts to seek a refund for an item they have purchased, that cardholder may bypass the merchant and call their bank instead. This is commonly referred to as a “chargeback.”

Learn more about chargebacks

From the merchant's perspective, debit card disputes are very similar to credit card disputes. Both mean losing revenue and merchandise, and paying added fees. However, from the cardholder’s point of view, debit card disputes can cause much more trouble than a credit card dispute.

Let’s dig into these differences a bit in the next section.

What's the Difference Between Credit and Debit Disputes?

Credit and debit cards aren’t all that different. Cardholders can use them almost interchangeably, and debit cards are usually accepted anywhere you can use a credit card. That isn’t to say that they are exactly the same, however.

Credit cards are attached to a line of credit extended to the cardholder by their bank. If a customer disputes a charge, the issuer will immediately extend them a credit to cover their losses in most cases. The bank then investigates the matter to determine the case’s validity. If the customer is proven correct, they will keep the funds. If the merchant can refute the dispute, the funds will be re-charged to the cardholder’s credit line.

Debit Card Disputes

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On the other hand, debit cards are linked to the cardholder’s bank account. They’re tied to funds that actually exist in the cardholder’s name, rather than a line of credit. Thus, cardholders have more to lose when it comes to debit card disputes.

Cardholders are only entitled to dispute debit card charges if they’re the victim of fraud or abuse. Otherwise, they must work with the merchant to refund any transactions they are unhappy with.

Also, the bank might be more hesitant to issue a provisional credit, as the money belongs to the cardholder, not the bank. In these instances, the funds in question won’t be returned to the cardholder until the bank can resolve the dispute. If the bank decides the cardholder’s claim doesn’t hold water, the cardholder never gets the money back.

Other differences exist, too. For example, the debit card dispute time limits, cardholder liability limits, amount of funds available at purchase, and the liability afforded to each party. All are more advantageous to cardholders with credit card disputes.

Learn about different types of payment disputes

Who is Liable in a Debit Card Dispute?

Cardholders are protected by the Fair Credit Billing Act (FCBA) in criminal credit card fraud cases. This law ensures that users aren’t held liable for more than $50, regardless of the fraudulent amount. If a credit card is reported lost or stolen, the cardholder isn’t on the hook for any additional charges made by the fraudster.

Most credit card networks advertise ‘zero-liability’ protection to attract consumers to their platform, even when a cardholder fails to recognize the fraud until they receive their statement.

Debit cards are different. The FCBA doesn’t extend protections to debit cards. Instead, the Electronic Funds Transfer Act (EFTA) outlines debit card fraud protection. Under EFTA guidelines, cardholders may still be covered, but that coverage depends on when the card is reported lost or stolen.

The table below outlines debit card fraud protections guaranteed under EFTA guidelines:

If the missing card is reported... The Customer is responsible for...
Before any unauthorized transactions $0
Within 2 days of discovering the loss  Up to $50
More than 2 days of discovering the loss First $500
60+ days after statement is sent Any/all fraudulent charges
Learn about chargebacks & legal rights

Even if a bank agrees to forego liability for their customer, the debit reversal can still present other problems. For example, debit card dispute rules require an actual cash refund. Due to the complexity of transaction processing, that could take a week or more.

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How Do You File a Debit Card Dispute?

As we discussed above, debit card dispute regulations for cardholders differ from credit card disputes. This affects the way disputes should be approached and managed.

Here are the steps cardholders should follow to try and resolve an issue through the dispute process:

#1 | Review the Charge

Buyers should always examine the charge closely. There may be a chance that they simply forgot about the purchase, or are unable to recognize the charge based on the merchant’s billing descriptor.

A charge may be eligible for a dispute if any of the following is true:

  • The amount charged doesn’t match the advertised price.
  • The merchant failed to process a timely refund.
  • The product or service was not as described (and the buyer can prove it).
  • The merchant charged for a subscription the buyer had already canceled.
  • The transaction was unauthorized (i.e. fraud).

If any of these situations apply, the buyer may be entitled to file a debit card dispute with their bank. Remember: disliking an object, delivery delays, or not wanting to pay for something a family member ordered are not acceptable reasons for a dispute.

Cardholders want to avoid filing an invalid debit card dispute; this is a practice called friendly fraud. If this happens, the merchant can fight the claim, meaning the funds could be in limbo for weeks, or even months. Also, filing false debit card disputes can affect the cardholder’s standing with the bank, and may even result in the loss of their account.

#2 | Contact the Merchant

Banks are supposed to require cardholders to try and resolve the issue with the merchant before requesting to dispute a debit card charge. There's a good reason for this; in many cases, it can be a faster, easier option for everyone involved.

Merchants can often reverse charges more quickly than can be done by getting banks involved. Failing that, they may be able to issue a credit for the difference.

If these options do not work, the cardholder should make sure to provide the bank with documentation. Examples include screenshots of conversations, the listing for items purchased, and any other pertinent details to prove the claim.

#3 | Contact the Bank

If the merchant is unable—or unwilling—to provide a refund, and if the above criteria are met, the cardholder may reach out to their issuing bank to rectify the situation.

Keep in mind that the issuer is different from the card network. The cardholder will not be reaching out to Visa or Mastercard; rather, they must contact the bank which issued their payment card.

The bank will conduct a preliminary investigation. If the cardholder’s claim seems valid, they will issue a provisional credit and return the funds to the customer’s bank account. They will then recoup the money by initiating a debit card dispute with the merchant.

#4 | Keep Track of Updates

Even after the chargeback, the cardholder should still keep track of any updates to their claim.

They should watch their bank alerts and inbox for any further updates or requests for information. If the merchant decides to fight the dispute, and can provide evidence that they held up their end of the purchase, the cardholder may need to supply the bank with additional explanation and details.

What's the Merchant's Perspective?

Now that we’ve got a good idea of how the dispute process works for cardholders, let’s discuss how it affects merchants.

From the merchant’s perspective, there isn’t much functional difference between a debit card or credit card dispute, at least at first glance. Until the claim reaches the chargeback stage, the process to dispute debit card chargebacks is much the same, regardless of what type of card was used.

Debit card chargebacks tend to be less of a headache for merchants than their credit counterparts. Why? Well, for the same reason a disputed debit card transaction is such a pain for cardholders: debit cards deal with actual funds, rather than hypothetical credit limits.

Debit Card Disputes

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Since the cardholder’s funds are on the line, they are more likely to approach the merchant for a direct refund, rather than take their issue to the bank. This can save the merchant a chargeback, plus the resulting fees and the negative hit to the the merchant’s chargeback ratio.

It’s true that this can help stop many disputes before they become chargebacks. Still, once the chargeback is filed, the merchant will be hit with debit card dispute charges, no matter the outcome of the dispute.

How Can Merchants Fight Debit Card Disputes?

Merchants can fight back against invalid chargeback debit card claims through representment. While a lot goes into this process, here’s a basic rundown of debit card dispute regulations for merchants:

#1 | Examine the Claim

The bank will supply a reason code to explain the claim made by the cardholder. The merchant should compare the cardholder’s claim to the documentation on file to see if it’s valid. Debit card dispute rules apply to merchants, so it is wise to know when it’s appropriate to fight back… and when not to do so.

Merchants should only fight a debit dispute if they:

  • suspect friendly fraud
  • have already offered to provide the cardholder with a refund
  • can prove the cardholder made a mistake or invalid claim

Every chargeback a merchant receives impacts their chargeback ratio. This can have severe consequences for a business, including high-risk merchant status and even a terminated merchant account.

#2 | Gather Evidence

A merchant needs evidence to fight an invalid claim. Acceptable documents can include transaction details, photographs, transcripts of conversations with the cardholder, and tracking/shipping information.

Compelling evidence for chargeback representment is crucial. The bank has already ruled that the merchant’s initial presentment was invalid. So, the seller needs evidence that can undermine the cardholder’s new claim.

#3 | Draft a Rebuttal Letter

Compelling evidence isn’t the only necessary documentation here. The merchant must also include a rebuttal letter with the representment package.

The rebuttal letter is meant to give context to the evidence being submitted. It helps explain the situation and makes a concise, yet compelling argument for why the debit chargeback should be reversed.

#4 | Submit the Documents

After reviewing all documentation, the final step is for the merchant to submit their claim to the bank. This must be done according to specific requirements (i.e., email, fax, physical mail, etc.), which will be outlined by the merchant’s acquirer.

Once the seller submit their case, the acquirer will review it and forward it along to the issuer. It is then up to the cardholder’s bank to decide if the argument is sound or compelling enough to reverse the debit card chargeback.

The bank could reject the merchant’s claim and return the dispute. This action is called an arbitration chargeback or a “pre-arb,” depending on the card network involved.

Merchants Need a Complete Solution

Debit card disputes might not cause merchants as many headaches as credit card disputes, but they should never be ignored.

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