Legal Ramifications of Chargebacks

Whether the buyer is an individual or a business, some kind of notice is typically required to the seller that a transaction is in dispute. For individuals, the credit card company takes care of this notification. For businesses, companies may be required to notify each other per the terms of separate agreements between the two parties directly. In both cases, a reasonable time period is expected. Buyers can’t come back a year after the purchase demanding their funds for a disputed transaction.

Just because a buyer initiates a dispute to get a chargeback doesn’t mean he or the company is off the hook. Credit card agencies initiate an investigation and a certain level of proof is expected from the buyer to support the dispute claim. If no evidence is provided within two weeks or the expected time period, the credit card agency typically reinstates the charge as if it was accurate and correct in the first place.

Companies that receive a lot of chargebacks begin to develop a less than savory reputation in the business community. If a significant pattern develops, both local better business bureaus and state financial regulators can get involved. While a better business bureau can only make a determination that a business is behaving badly, state prosecutors can pursue both civil and criminal penalties if they find a state law was broken.

The strongest legal protection from unscrupulous chargebacks is to avoid them altogether by not taking credit card payments. However, this approach is not practical for many business. Instead, many businesses include as much terminology as possible in sales agreements to obtain a buyer’s waiver of transaction dispute rights. Many hope using such legal language will win the issue with a credit card company before the dispute even occurs. Ultimately, however, the chargeback implementation decision is in the hands of the credit card issuer, not the seller or buyer.