August 12, 2020

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

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, 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

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