Last updated on November 27th, 2020
One of the best benefits of a credit card is the extra security it provides. Credit cards do not only protect you from identity theft, however. Your humble piece of plastic (or metal) also keeps you safe from fraud, shoddy merchandise, or other seller errors. Here’s what you need to know about payment reversals and chargebacks: Can credit card companies reverse payments?
Credit Card Payment Reversals
Simply put, yes, credit card companies can reverse your payments. When an issuer or bank (or cardholder, for that matter) decides to decline payment, it is known as a payment reversal.
Payment reversal can occur for a couple of reasons, including refunds for sold-out products, incorrect information, or customer disputes.
Authorization reversal is another common form of payment reversal. This type comes from your card issuer and often concerns the way issuer handles payments.
Credit card payments travel through what’s known as an “Automated Clearing House” (ACH). The ACH is an electronic funds transfer system that handles transactions. Unfortunately, ACH is sometimes slower than banks would like, so many actions are pre-authorized.
Because of this pre-authorization, specific details of a transaction might be incorrect, such as the price or the actual item being purchased. When a reversal occurs, the merchant (or bank) reverses the charge, thereby releasing the payment hold and freeing up the funds on the customer’s credit card.
Chargebacks are the most common type of credit card payment reversal. A chargeback occurs when a credit cardholder calls their bank to dispute a charge on their account. The Fair Credit Billing Act provides consumers with protections from fraudulent charges, faulty goods, or other service issues. Chargebacks are one of these protections, and they allow you to get your money back.
When you dispute a charge with your card issuer, the law requires them to withhold payment for any goods or services you are challenging. This process involves placing a hold on the purchase – in other words, the chargeback.
How to Do a Chargeback
To dispute a charge, cardholders will need to file a claim with their card issuer. The bank will then investigate the charge with the payment network and merchant. Each payment network has a different timeframe in which cardholders can file for a chargeback:
- Visa: 120 days to submit a chargeback request.
- Mastercard: 120 days to file a payment reversal claim.
- Discover: 90 days to file a payment reversal request.
- American Express: 90 days to file a payment reversal claim.
Both American Express and Discover are slightly different than Visa and Mastercard with chargebacks, as they are both card issuers and payment networks. In many cases, these issuers work with in-house information and can make a decision instantly. Banks want to keep customers happy, so they will always try to speed up dispute investigations.
What to Do If Your Chargeback Claim Fails
If your bank or card issuer declined your payment reversal claim, you still have options. The laws of your state may provide resources for those who fail with billing disputes. In fact, many state laws provide more robust protections than federal law.
Related Article: What Happens If You Exceed Your Credit Limit?