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Your Money: What Happens When You Dispute a Credit Card Charge

January 25, 2013 by Leave a Comment

The card issuer generally takes your word against the merchant or service provider at the outset, restores the money to your bank account temporarily or issues a credit and then goes about its investigation. It essentially demands that the merchant or service provider who supposedly did you wrong prove that it did no wrong at all.

But if you have never wielded this power tool of consumerism, there are a few things you should know first. The cat and mouse game that goes on behind the scenes can be tilted much more — or much less — in your favor, depending on which charges you dispute and how you go about disputing them.

Chances are you will need to use the dispute process sooner or later. We live in a world where you often cannot use cash to buy cocktails on an airplane and any individual can attach a card reader to a smartphone and accept card payments from anyone else. Mistakes will inevitably be made.

Meanwhile, all sorts of online businesses depend on recurring subscription revenue to stay afloat. Mistakes will inevitably be made again. Oops, we somehow forgot to honor your request to cancel your subscription. Oops, we forgot again. Oh, but now it will take until the next billing cycle. Sorry!

You have had the legal right to correct these mistakes ever since 1975, when the Fair Credit Billing Act went into effect. The law dictates that there be a process by which you can question unauthorized charges, billing errors and transactions involving goods or services that you never received or that merchants did not deliver in the way they were supposed to.

This creates a number of problems for merchants. Plenty of people pretend that they never received products that were supposed to arrive by mail and then dispute the charge, hoping that their card company won’t be able to figure out that they are liars and thieves.

Even legitimate beefs or misunderstandings create a large number of problems. Visa processes over 50 billion transactions each year. While cardholders dispute just 0.037 percent of them, that adds up to over 18.5 million complaints. According to MasterCard, 0.05 percent of its transactions are subjects of dispute, so its card issuers will deal with almost as many complaints.

Several million of these disputes involve outright fraud, though none of the card networks would break out the exact percentages. Avivah Litan, an analyst at Gartner, figures about 20 percent of all disputes involve fraud.

The rest of them require a lot of manual labor. Every time someone initiates a dispute, the bank that issued the card has to look into it. That means someone has to contact the merchant and wait for a reply that may include a receipt or other documentation that arrives via fax machine or by some other Jurassic process.

Merchants must carve out time to respond to each dispute. They also pay one-time fees for the privilege and may end up paying higher overall fees to accept cards if a pattern of too-frequent disputes emerges. Or they just get cut off from accepting cards altogether, as American Express tried to do with online pornography sellers in 2000.

The true cost per dispute to the banks of all of this back and forth ranges wildly from $10 to $40, according to a 2010 estimate by the consultants at First Annapolis. Given that cost, according to Scott Reaser, a principal there, many banks will simply 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, it turns out, have similar strategies, according to a 2009 Government Accountability Office report. So even if the bank does contact a merchant about the dispute, the merchant itself may choose to give up and allow the customer to win the dispute without bothering to investigate the complaint. The report did not say what the threshold was, and the G.A.O. is not permitted to identify the retailers it spoke to.

It is tempting to come to the conclusion that you can get away with disputing any old thing under $25 and not have to worry about tangling with the merchant ever again. But given that frequent disputes can lead to higher costs down the road, some merchants vow to fight every single one.

Or they have consultants who make them fight as a condition of offering their assistance. That’s how Monica Eaton-Cardone, the co-founder of Chargebacks911.com, works with her merchant clients to help them keep their dispute rates down and get out (or stay out) of trouble with the companies that control their ability to accept cards.

Twitter: @ronlieber

Article source: http://www.nytimes.com/2013/01/26/your-money/what-happens-when-you-dispute-a-credit-card-charge.html?partner=rss&emc=rss

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Bucks Blog: Kidding Ourselves About Our Financial Reality

October 25, 2011 by Leave a Comment

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

In its most simplistic form, financial planning is the process of charting a course from where you are today to where you want to go. The first step is to become crystal clear about what I call your current reality, or where you stand now.

I used to think that being very clear about your current reality was the easy part of financial planning. Once you did that, the hard part started: Making guesses about other things, like where you want to be in 20 years, the rate of return you will earn and inflation.

Compared to those variables, defining your current reality should indeed be the easiest part of the process. It’s certainly a matter of fact. But apparently getting this clear is harder than I thought.

Based on a new study from the Federal Reserve Bank of New York, it appears that we have a problem: Many of us are actually far from clear about our current financial reality. According to the study, only 50 percent of households reported having credit-card debt, while credit-card companies indicated that the number is actually 76 percent of households.

In addition, even after adjustments were made for people paying their full balances every month, the average household reported credit-card debt of $4,700. Lenders, meanwhile, report an average balance per household of over $7,100.

While I haven’t read the entire study, my sense from the conversations I’ve had in the last couple of years is that these misunderstandings are indeed a problem. A number of reasons could explain the difference, but among them is the reality that many of us may not know where we stand with respect to our finances. In fact we may not want to know.

As the study’s authors point out, this result “could come from willful ignorance, as credit-card balances are not welcome information.” When you are overweight the last thing you want to see is a scale!

But how can you expect to make progress if you have no idea where you’re starting from? Over the years, I’ve noticed that the biggest differences between people who reach their financial goals and those who don’t is knowledge of where they stand in the first place. When I ask financially successful people for a balance sheet showing their assets and debts, not only do they know what a personal balance sheet is, they often have one that is relatively current.

The point here isn’t that a balance sheet leads to guaranteed financial success. But if we’re to have any hope of getting to a destination, it helps to start by being very clear about where you’re leaving from. In this instance, a balance sheet can help with that clarity.

If you’re unhappy with your financial situation and want to make a plan to change it, start today by defining where you stand. Take all the credit cards out of your wallet, flip them over to the back, find the phone number and call the credit card company to ask for your balance. Write the balances down on a piece of paper. Add up the total.

Now make a plan to deal with what you’ve just learned. There’s been plenty written about how to do that, but it all starts by getting very clear about where you stand.

Article source: http://feeds.nytimes.com/click.phdo?i=f4156a7ca2f6df64160edf3d7255b2b5

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Bucks Blog: The Experian Plus Score: What It Can and Can’t Tell You

August 24, 2011 by Leave a Comment

While Matt certainly isn’t alone in his opinion about credit scores, his irritation seems to be based in part on either bad advice or simple misunderstandings about how credit scoring works.

1) The biggest problem is the score on which he’s focused. If he’s getting his score from an Experian credit monitoring services then he is getting his ‘PLUS’ score. PLUS is a scoring system developed by Experian for use on their consumer Web sites. PLUS is not available for use by lenders. It is an educational score, that’s it. So, he can improve that score all he wants and it won’t do him a bit of good. In fact, Experian is being sued, class action, because of that very score and how it’s tacitly marketed as being a relevant score in the lending environment.

(Here’s how Experian’s own Web site describes the PLUS score: “The PLUS Score, with scores ranging from 330 to 830, is a user-friendly credit score model developed by Experian to help you see and understand how lenders view your credit worthiness. It is not used by lenders, but it is indicative of your overall credit risk. Higher scores represent a greater likelihood that you’ll pay back your debts so you are viewed as being a lower credit risk to lenders. A lower score indicates to lenders that you may be a higher credit risk.”)

2) He set himself up for scoring problems when he closed his credit cards in 2006. Don’t get me wrong. What he did was completely understandable, as common sense dictates that having credit cards could be problematic. The problem is that credit scoring systems reward consumers for having unused and available credit limits. He eliminated that when he closed his cards.

3) When he opened a new card before he took a recent trip (per his blog) he was assigned a credit limit of $5,000, which is a modest limit. When he made charges on that card his debt-to-limit ratio (also called Revolving Utilization) shot up because even modest vacation charges on a $5,000 card are going to result in fairly leveraged card. This is compounded by the fact that he had closed his pre-existing cards in 2006 (#2 above) thus leaving himself no unused available credit on other cards, which would have helped to balance out any spike in usage of the one new card.

An easy way to understand this is…

$5,000 card with a $2,500 balance = 50 percent utilization (not good). However, if he would have paid off the old card (the one with the $20,000 limit) and left it open then the math shakes out like this…

$25,000 in aggregate limits and $2,500 in aggregate balances = 10 percent utilization (very good).

4) Here are some incorrect understandings he has about credit scores, which contributed to his irritation.

Mr. Haughey: I used to think a credit score was all about your ability to pay, but it’s clear now it’s more about how profitable you will be to banks.

A credit score is not a tool used by lenders to predict your ability to pay, and they have never been billed or represented as such. Your ability to pay (or “capacity”) is measured by your income and holdings.

Credit scores predict whether or not you are likely to pay your bills, a big difference. Credit scores are completely dependent on information on your credit reports, hence the term “credit score.”

Income, assets, holdings, net worth and all other wealth metrics are absent from credit reports. Credit scores CAN’T consider these things because they’re not on your credit reports. Credit scores reward you for properly managing your credit, not for making a lot of money. I’m thankful for this because if it was all about wealth then lawyers, doctors, executives and professional athletes would have the highest scores and hourly employees would have the lowest scores.

Mr. Haughey: “I had the highest credit score at a time in my life when I was leveraged to the hilt and I lived paycheck to paycheck.”

As insane as this is going to sound, that makes perfect sense. Credit scores are designed to measure how well you manage your credit so if your credit reports reflect sound credit management your scores are going to be very good.

Mr. Haughey: “Financially, I’m in the best shape of my life right now. My house will be paid off in about five years at the rate I am going, I have a great retirement portfolio that I contribute aggressively towards and it continues to grow, and my business is doing well even as we’ve expanded with a new employee and several contractors.”

This is great but nothing stated above has anything to do with credit risk. As such, it doesn’t have a direct influence on your credit scores.

My advice for Matt is to:

A) Ignore about 80 percent of the comments on his blog because they’re either incorrect or inflammatory.

B) Get his real FICO scores from FICO’s Web site, myFICO.com. I’ll even pick up the tab for his scores just to do my part in pointing him in the right direction.

C) Study up on what will improve your FICO scores, not what will improve your PLUS score. There’s plenty of really good educational materials available for download at the FICO Web site.

Article source: http://feeds.nytimes.com/click.phdo?i=15940754601fe92bb4caa7a141365dc5

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