Chargeback Laws

Intended to protect consumers from fraudulent credit card charges, chargebacks can be very expensive for small business owners. They can occur up to a year after the sale and do not require the return of the disputed merchandise, so merchants potentially lose both money likely already spent and the item in question. In addition, many banks impose chargeback fees. Knowing the laws associated with chargebacks helps you to not only prepare a strong defense, but to potentially avoid the chargeback altogether by offering an alternate resolution.

Under Federal laws your customers have the right to dispute charges based on billing errors or under "claims and defenses" provisions. Billing errors include unauthorized charges, undelivered goods or services, misrepresentation of goods or services, the wrong quantity of goods or failure to provide goods or services within the expected timeframe. "Claims and defenses" refers to additional customer complaints such as poor workmanship; however, your customer can utilize this option only if she made the purchase within 100 miles of her home and after she has made an attempt to resolve the dispute with you directly. This gives you the opportunity to accept the return or offer a credit rather than entering into a prolonged dispute.

A customer claiming a billing error must state her claim, in writing, within 60 days of her purchase. If she misses that deadline, she may still be eligible to contest the charge through the "claims and defenses" provisions, as there is some overlap between the two avenues. "Claims and defenses" chargebacks can be requested up to one year from the time of purchase. However, these claims can only be attempted on purchases made within 100 miles of the customer's home and valued at over 50 dollars. In addition, your customer must have tried and failed to receive a return or credit prior to initiating the chargeback process.

Once a customer has requested a chargeback, you can appeal it. You will be required to provide a signed copy of the credit card receipt and documentation that you performed the services, or provided the goods paid for. Failure to produce the credit card slip will result in an automatic finding for your customer. You must also follow the timelines provided by the bank. For example, JPMorganChase requires you to provide the signed credit card receipt within 30 days. By carefully complying with bank requests and documenting all interactions with your customer, you strengthen your case against the chargeback. Even if you lose your appeal, and the bank upholds the chargeback, you can still pursue payment in court if you feel the bank was wrong.

You can set any return policy you feel is reasonable, although some states may require you to clearly state your policy before a purchase is made. Despite this, chargebacks can be upheld for defective merchandise regardless of your policy. Customers have the right to expect reasonable quality in the goods purchased, and can dispute a charge up to a year after purchase if the merchandise is faulty. However, they can only do so if they have attempted to work with you first. You can choose to exchange the merchandise for a new item rather than losing both the sale and the goods as you would with a chargeback.