What Happens When You Dispute a Credit Card Charge

The New York Times has an interesting behind-the-scenes look at the process of credit card disputes.

First, as you probably know, the card company tends to assume the customer is right and issues a temporary credit/refund, which is made permanent if the investigation goes in your favor. (This is what happened when my identity was stolen and some Chinese eBay-like site claimed I spent $500 there. Yeah, right.)

You have a right to dispute unauthorized or illegitimate charges under the 1975 Fair Credit Billing Act. That’s the same law that limits your losses to $50 if your card is stolen and used.

Legally, this means you’re generally in the position of power. Visa handled $765.9 million in disputed charges over the last year and a half, and Mastercard expects to deal with more than 15 million protested transactions this year. That’s a lot of money, and a lot of time (of course, time is also money) to make sure you get a square deal.

So when you say “no, that’s not right,” your lender turns to the merchant, cracks his knuckles and says, “OK, you want the money? Prove it.” The merchant then has to dig up a receipt or other proof and pay a (one-time) fee to respond to the dispute. They may end up getting charged higher fees for the right to accept plastic payments, or lose their access altogether and become cash-only.

The NYT article estimates this costs lenders $10 to $40 per dispute, so if the questionable transaction costs less than that, the bank may cut its losses just to save time and maybe a few bucks. They won’t contact the merchant at all, instead just assuming the customer is right, and cover the charge themselves.

This happens on the other end, too: the merchant might just say to-heck-with-this and let the customer win. The threshold amount or situations where this will happen varies from retailer to retailer and lender to lender.

And, of course, some people unfairly abuse this, disputing legit charges. But the article warns that some retailers will fight every charge, because they don’t want to pay more for the right to accept credit cards (and probably have to raise prices along the way).