What happens when a merchant denies the charges?

By | October 15, 2020

If a merchant denies your chargeback then?

If you are wondering about this question in your mind, then it is safe to assume that you know the basic process of a Chargeback. We’ll still just refresh it in your memory. As a customer, when you feel you have been wronged by a merchant, you apply for a chargeback. You(cardholder) do this, by basically bringing this to the attention of your bank(Issuer’s bank). You explain your case and then your bank forwards this to the merchant’s bank(Acquirer’s bank), along with the apt reason code. A reason code is essentially a code used to categorize a specific type of reported fraud. These are determined by the card networks(Visa, MasterCard, Discover, etc), and are different codes for different networks. At this time a temporary credit is made to the customer’s account by the issuer’s bank, for the same amount lost.

Once the acquirer’s bank gets this notice, they check up their logs to see if there has been an error on their end. If not, they forward this ‘complaint’ to the merchant. Now this is where our dilemma’s answer starts. When a merchant gets the chargeback request, it can either accept the charges and refund the money, or it can refute the charges and make its case.

Pre-Arbitration Stage

So, initially when the merchant refutes the charge, it has to provide supporting evidence to make its case. So basically it can gather up any and all evidence it has to prove that it kept up its end of the contract. While the customer typically has a period of 45-180 days to make its case; The merchant has to refute the claim in 7-10 days to avoid the chargeback. Once it has compiled all it’s evidence, it passes it on to the acquiring bank, who forwards it to the issuer’s bank. At this point a temporary credit is made to the merchant’s account too. So the amount is temporarily credited back to both parties. The issuer’s bank now has to see the presented evidence and make a decision. It can either decide that –

  • The merchant’s evidence doesn’t refute the chargeback, and thus the credit in the customer’s account becomes permanent and the merchant has to pay up.
  • The merchant’s evidence clearly refuted the claim and thus the temporary credit from the customer’s account is taken away, and the temporary credit for the merchant becomes permanent.
  • The merchant’s evidence refutes the charges successfully, but the customer applies for another chargeback under revised reason codes.

Arbitration Stage

Now depending on which party gets the ruling in their favour, the other might still want to fight it. This is when you go into the arbitration stage. This is a process overlooked and ruled upon by the card association. In this process both the banks submit all the evidence they have on the case to the card association. The card association then after due diligence makes a ruling, and the party who was wronged gets their funds back. If it is the merchant who was the perpetrator, then they also have to pay a fine too.

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