The Chargeback: Using Your Credit Card to Get a Refund

Have you ever paid for a product or service, but were unable to use it? For example, when companies declare bankruptcy or go out of business people are often unable to take advantage of pre-paid purchases, such as plane tickets and gift certificates. Online shopping also creates difficulties for many buyers who cannot simply go to the store and complain if they have a problem with their orders. However, by using your credit card for purchases, you have a remedy if you experience problems later.

Fair Credit Billing Act
Under the Fair Credit Billing Act you can dispute credit card charges for goods and services you never received and, under certain circumstances, for unsatisfactory goods or services that you did receive. This right is time-limited. The creditor must receive a letter from you within 60 days after the bill containing the charge is mailed to you. The creditor has two billing cycles or 90 days, whichever is less, to investigate your claim. You do not have to pay the disputed portion of the bill while the creditor is researching the claim, but you still must pay any undisputed part.

If the creditor agrees with your dispute they will remove the charge from your bill and reverse payment to the merchant you bought the product or service from – called a chargeback. If the creditor disagrees with your dispute they are required to send you a letter explaining why. At this point you must pay the disputed amount and any finance charges that have accrued, or you will be marked late on your credit report. To dispute the findings you must write to the creditor within ten days of receiving their letter.

Debit Cards
The Fair Credit Billing Act only applies to credit cards, not debit cards. However Visa and MasterCard offer the same chargeback service for debit cards transactions where you choose the “credit” option (as opposed to the “debit” option). Still, even though you can request a chargeback on some debit card transactions, there is an important difference between debit cards and credit cards. With a credit card you do not have to make the payment while the company is researching the charge. With a debit card the money is taken out of your checking account right away, and you have to wait to get your money back.

Responsible Use
Using a credit card provides extra protection, but try to avoid making purchases with your credit card if you do not have the money in your checking or savings account to pay off the balance in full the next month. The advantages of using credit cards can be quickly outweighed by the disadvantages if they are not used responsibly.

Revised January 2016.

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