Disputing a Charge on Your Credit Card

If you have ever disputed a charge with your debit or credit card company, you know how challenging it can be.

When you call your card company to inform them of the charge in question they generally take your word for it. Then restore the bank account temporarily or issue a credit, and then they go about their investigation. The company essentially demands that the merchant or service provider who supposedly did you wrong prove that it did no wrong at all.

Chances are you will need to use the dispute process sooner or later. If you have never disputed a charge there are a few things you should know first. The behind-the-scenes game that goes on can be tilted much more—or much less – in your favor, depending on which charges you dispute and how you go about disputing them.

It is your legal right to dispute any mistakes. The Fair Credit Billing Act of 1975 dictates that there be a process by which you can question unauthorized charges, billing errors and transactions involving goods or services you never received or merchants did not deliver in the agreed upon way.

According to MasterCard, 0.05% of its transactions worldwide are subjects of dispute. Its card issuers will probably deal with over 15 million questionable charges this year.

These disputes can create real problems for merchants. Too many people pretend that they never received products and dispute charges, hoping their card company won’t be able to figure out that they may be liars and thieves.

Even legitimate misunderstandings create problems. Several million of these disputes involve outright fraud. It is estimated that 20% of disputes involve fraud. These require a lot of manual labor for banks. Every time someone initiates a dispute the bank that issued the card must look into it. Someone has to contact the merchant and wait for a reply that may include a receipt or other documentation.

According to consultants at First Annapolis in 2010, the true cost per dispute to the banks ranges from $10 to $40. Given that cost, many banks will absorb the disputed charge on a consumer’s bill and never contact the merchant if it is below a certain threshold.

That number will differ for every bank, though it probably averages around $25. Some large retailers have similar strategies. So even if a bank contacts a merchant about a dispute, the merchant may allow the customer to win the dispute because the merchant won’t bother to investigate the complaint.

It is tempting to conclude that you can get away with disputing any charge under $25 and not have to worry about tangling with the merchant again. But given that frequent disputes can lead to higher costs in the future, some merchants will fight every complaint or dispute.

Over 70% of people disputing charges with their bank, never call the merchant first. However, consumers owe merchants one fair shot. Allow merchants one chance to make their wholehearted best effort to make things right. If they breach their commitment, then consumers should simply escalate the complaint by going to the bank and say goodbye to that merchant.