What Happens to the Merchant When You Dispute a Charge? Answered
Under the Fair Credit Billing Act (FCBA) and the Electronic Funds Transfer Act (EFTA), you have the right to dispute charges on your credit or debit card if you believe them to be inaccurate or unauthorized[1][2].
Even though it usually requires your involvement only in the initial stages, payment dispute resolution is a complex process with multiple stakeholders involved—including the merchant who charged your card.
This guide will explain the process in detail, with an emphasis on what happens to the merchant when you dispute a charge. You'll also learn how virtual cards can benefit you and offer a proactive solution to payment disputes.
How Does the Dispute Process Work?
The dispute process typically starts after you notice an unauthorized or incorrect charge on your credit or debit card and decide to contest it. There are several types of charges that count as valid reasons for dispute, including[1]:
- Fraudulent charges made with your stolen card details
- Charges for damaged or defective products or items or services you never received
- Billing errors, such as incorrect amounts, duplicate charges, and hidden fees
- Recurring payments for a subscription you already canceled
- Charges for returned items that haven't been refunded
Generally, you should first try to resolve the issue directly with the merchant, as this is usually faster and less complicated. If this attempt fails, you can file a dispute with your card issuer.
When filing a dispute, you’ll usually have to present evidence showing you have grounds for it. It’s also important to observe the deadlines for disputing a payment. If you want to dispute a charge on a credit card, for example, you should have at least 60 days from when a statement reflecting the charge you want to dispute was mailed to do so.
After receiving and acknowledging your dispute, your card issuer has up to 90 days to investigate and resolve the issue for a credit card payment or 45 days for a debit card payment[1][2]. The issuer may temporarily credit the disputed amount to your account during this time, and if you win the dispute, you can keep the provisional credit.
What Happens to the Merchant?
Merchants won't know about a dispute until they receive a notification from their acquiring bank—the bank they use to settle payments. Usually, when you file a dispute, and your issuer determines that the complaint is valid, the process involves these steps:
- Your card issuer presents a report about the dispute to the card network.
- The card network notifies the merchant’s acquiring bank.
- The acquiring bank notifies the merchant about the dispute, and it might also debit the merchant’s account for the disputed amount.
At this point, the merchant has two options—to accept or contest the dispute. If the merchant acknowledges that they made a mistake, they'll accept the chargeback, you will be refunded.
However, if they believe that the charge is valid, they can contest the dispute through a process called representment.
What Happens in the Representment Stage?
If a merchant decides to fight your dispute, they should gather evidence backing their claim that the charge was valid. Depending on the reason for the dispute, the merchant’s evidence might include:
- Signed receipts that show you approved the transaction
- Transaction and communication history
- Proof of delivery of service or products
- A copy of their return and/or refund policies
- A description of the products or services the contested payment applies to
The merchant will submit this evidence and a rebuttal letter to the card network, which will route it to your card issuer. Two things can happen at this stage, as shown in the table below:
If you’re not satisfied with the outcome of the process, your issuer will give you the option to appeal the decision.
How To Appeal a Chargeback Decision
You’ll usually have up to 10 days from the date of the chargeback denial letter or the period the issuer gives you for payment (whichever is later) to appeal the decision[3]. To do this, you should submit a letter to your issuer explaining why you believe the chargeback decision was wrong and provide new evidence that supports your claim.
The merchant will again have the chance to accept or offer a rebuttal. If they opt for the latter, however, the process moves to the arbitration stage, where the card network makes the final decision. Arbitration is an expensive process, however, so merchants might opt to avoid it.
If you lose the arbitration, your final recourse is to file a complaint with the Consumer Financial Protection Bureau (CFPB)[4] or seek legal counsel. However, keep in mind that these options can be time-consuming and costly. It's always best to try and resolve disputes with your issuer directly before pursuing other avenues.
What Happens if a Merchant Does Not Respond to a Chargeback?
Merchants generally have 20 to 45 days to respond to a chargeback, depending on the card network and their acquiring bank[5].
If they don't respond within this timeframe, the chargeback is automatically awarded in your favor, and their account is debited for the disputed amount. The merchant is also responsible for the cost of the chargeback process, which Mastercard estimates might range between $15 and $70 per dispute[6].
How Hard Is It To Get a Chargeback?
While filing for a dispute allows you to protect your funds against fraud or merchant errors, it's not a simple process. It can be lengthy, often taking weeks or months to resolve, and requires time and effort. You must gather evidence, respond to inquiries, and possibly appeal decisions. Additionally, there's no guarantee that your dispute will be resolved in your favor.
You can avoid some reasons for filing a dispute by using virtual cards when making online payments. These cards are designed to hide your real payment card data during checkout and provide advanced controls, reducing the risks of unauthorized charges.
While most banks and financial providers offer virtual cards, they typically lack the advanced card features you get from specialized providers like Privacy. These features give you better control over your online payments, helping avoid billing errors or unauthorized charges.
Avoid Disputes and Chargeback Challenges With Privacy Virtual Cards
After linking your bank account or debit card to it, Privacy lets you generate multiple virtual cards with unique 16-card numbers, expiration dates, and CVV. These cards work like regular cards for online payments and are accepted by most local and international merchants that process U.S. Visa® and Mastercard® cards.
Privacy offers three types of virtual cards for different use cases:
- Single-Use Cards—These cards close automatically moments after the first purchase, rendering them useless to potential hackers who may try to steal them and use them for unauthorized transactions. This card type is ideal when shopping on unfamiliar websites.
- Merchant-Locked Cards—You can use these cards for multiple transactions, but only with the first merchant you use them with. If a cybercriminal gets hold of the card number, they won’t be able to use it anywhere else. This card type is perfect for your go-to vendors and subscriptions.
- Category-Locked Cards—These cards “lock” to a specific merchant category, like education or entertainment, instead of to a single vendor. They aid in budgeting and spending control and decline charge attempts from vendors outside the predefined category, helping protect you against unauthorized use.
To help you avoid duplicate charges, hidden fees, and other overcharges that could lead to a payment dispute, you can set spending limits on each card. Privacy will decline all transactions that exceed the limit.
You can also close or pause the cards, and Privacy will decline all further charge attempts, helping you avoid accidental charges, such as those that might occur when canceling a subscription.
Additional Convenience Features Privacy Offers
Privacy offers additional benefits and features to facilitate virtual card use and management, including:
- Browser extension—The Privacy Browser Extension, available for Chrome, Firefox, Edge, and Safari (or Safari for iOS), makes checkouts faster. You can generate new virtual cards in a few clicks or have your card details autofilled at checkout for fast and secure purchases.
- Mobile app—The Privacy App lets you create new virtual cards, manage existing ones, and monitor account activity on your iOS or Android device. You can get instant alerts whenever your Privacy Card is used or declined, helping you detect potentially suspicious activity promptly.
- Password manager integration—Privacy’s integration with 1Password allows you to safely store and manage your login credentials and financial data from a single dashboard.
- Card Notes—You can add notes to your virtual cards, such as the merchant's name or purchase details. This feature helps you organize your purchases and keep track of your spending.
- Shared Card—You can share your virtual cards with trusted friends or family members, allowing them to use the card for specific purchases without having access to your sensitive financial information.
How To Join Privacy—Eligibility, Steps, and Plans
To join Privacy, you have to be a U.S. citizen or resident over 18 years of age and have a valid checking account with a U.S. bank or credit union. If you meet this criteria, you can complete the following four steps to get your first Privacy Card:
- Create an account
- Provide the required KYC information to verify your identity
- Connect a funding source (debit card or bank account)
- Request and generate your virtual card
Privacy lets you choose from four plans, depending on your specific needs:
References
[1]Govinfo.gov. https://www.govinfo.gov/content/pkg/GOVPUB-FT-PURL-LPS73998/pdf/GOVPUB-FT-PURL-LPS73998.pdf, sourced January 10, 2025
[2]The Federal Reserve. https://www.federalreserve.gov/boarddocs/caletters/2008/0807/08-07_attachment.pdf, sourced January 10, 2025
[3]FTC. https://consumer.ftc.gov/articles/using-credit-cards-and-disputing-charges#additional, sourced January 10, 2025
[4]CFPB. https://www.consumerfinance.gov/complaint/process/, sourced January 10, 2025
[5]Mastercard. https://b2b.mastercard.com/news-and-insights/blog/how-can-merchants-dispute-credit-card-chargebacks/, sourced January 10, 2025
[6]Mastercard. https://b2b.mastercard.com/news-and-insights/blog/what-is-a-chargeback/, sourced January 10, 2025
