A chargeback is a consumer protection tool that allows users to get their money back for fraudulent, unauthorized, or defective merchandise. When chargebacks work as intended, they serve as an important consumer protection mechanism. But what happens if a customer is abusing the system by filing a false credit card dispute?
Before answering this question, let me illustrate the impact a chargeback can have on your business.
Impact of chargebacks
So what do chargebacks mean for your business? They hit your bottom line. When a customer is disputing a charge, you lose both the product sold and the revenue from that sale. In addition, small businesses can be impacted by:
- Chargeback fees. Each time a consumer files a chargeback, you may be hit with a fee. Even if the consumer later cancels, you, as the merchant, will still have to pay fees and administrative costs associated with the process.
- Excessive fines. If your monthly chargeback rate exceeds a predetermined threshold, you may be charged with excessive fines.
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- Termination. If your chargeback rates remain above the acceptable threshold, your acquiring bank could simply terminate your merchant account. Once an account is terminated it can be placed on the MATCH (Member Alert to Control High-Risk) list. This means your business can be labeled as high-risk, which can lead to ramifications when obtaining a new merchant account.
Winning a chargeback does not mean you will regain your chargeback-to-transaction ratio; you will regain profits but will not reduce the risk of a terminated merchant account.
What happens if your customer files a false credit card dispute?
First, don’t just automatically assume that all chargebacks are valid. As a merchant, you do have reasonable rights under the chargeback process that allow you a chance to dispute and win back the funds. You should certainly rebut chargebacks if you are confident the transaction was legitimate, you have compelling evidence against the chargeback, and the amount is large enough to justify the work of submitting evidence.
You must be clear about the procedure and policies you’re obligated to follow after a chargeback. A complete and timely response can go a long way in strengthening your position and can help to reduce the number of chargebacks that ultimately succeed against you.
Pay attention to deadlines. Time is of the essence when it comes to credit card chargeback disputes. If you miss a deadline, you will probably lose your chance to win.