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Secret weapon against unscrupulous merchants

If you think consumers have no rights, you've never heard about 'chargebacks.' All you need is a credit card and proof that a merchant isn't delivering what they promised.

By Stacy Johnson Nov 16, 2011 12:18PM

This post is from Jason Steele at partner site Money Talks News.


MoneyTalksNews on MSN MoneyIn every James Bond movie, our hero is introduced to a fascinating new weapon that he will inevitably turn against the bad guys. While I have no deadly devices concealed in my wallet, my credit cards contain the hidden power to defeat nefarious merchants -- the chargeback.


As Q would say, "Pay attention, 007!"


What's a chargeback?

Federal law requires that credit card issuers allow their customers to request a transaction be reversed for fraud and billing errors, among other things. While most chargebacks are related to stolen credit cards and identity theft, disputing a merchant's transaction is your most potent weapon -- and the merchant's worst nightmare.


Goods and services that are charged to your credit card can be refunded if they weren't received -- or if what the merchant provided wasn't what he said it was. In those circumstances, it's your right to contact your bank and request a reversal of those charges, a process known as a chargeback.


For example, when an airline goes out of business, customers holding tickets for future flights can easily receive a refund, provided they used their credit card. But ticket holders who used other methods of payment rarely get reimbursed.


How a chargeback works

I once ordered a computer part from a website. I entered my credit card information and received a confirmation of my order, yet it never arrived. Multiple attempts to contact the company went unanswered. Finally, I called my bank and requested a chargeback.


So what happened? The bank credited my account and asked me to submit documentation supporting my claim. I produced the sales confirmation and was later informed that my credit would become permanent.


Between the time I requested the chargeback and when it was approved, the bank had to contact the merchant to get their side of the story. I can only presume that they had no more success reaching this merchant than I did. But if the store had provided proof of shipment, the charge probably would have stood.


How to use a chargeback

The fascinating thing about chargebacks is that merchants live in fear of them. Each time a chargeback is requested, their account is debited and they have to defend themselves to their credit card processor. Post continues below.

Furthermore, credit card transaction fees, which retailers hate, rise dramatically when a merchant has too many chargeback requests. This is important for two reasons: First, a chargeback should never be your first course of action when you're having a problem with a merchant. You should always make multiple good-faith attempts to contact the merchant, speak to a supervisor, and give them the opportunity to "make it right." To do otherwise amounts to abuse of the system.


Additionally, I've found that informing a company's management that you intend to request a chargeback can quickly cause them to reconsider their unreasonable position. For example, an airline once charged me a fee I wasn't informed of and didn't authorize. They would only offer me a coupon for a future flight -- until I told them of my intent to request a chargeback. Only then did they agree to refund my money.


How to win a chargeback

Just because you requested a chargeback -- and received a temporary credit -- doesn't guarantee you'll prevail. You'll still need to produce supporting documentation to back up your claim. If you contend that the goods or services were never delivered, it will fall upon the merchant to prove otherwise.


However, if you're claiming that the goods or services received weren't as described, you must show some significant deficiency.  It can't just be buyer's remorse.


Providing photographs or supporting documentation from a third party is a great way to win these disputes. For example, I once received a car part that wouldn't work with my vehicle. By providing my mechanic's report, I was able to document the problem and win the dispute.


When you encounter a merchant who has charged your credit card and not delivered the goods, you have recourse. Once the business has proven itself to be unresponsive, evasive, or just obtuse, only then should you pull out your secret weapon in order to save the day.


And this is one reason why you should always use a credit card for online and major purchases.


More stories on Money Talks News and MSN Money:

Nov 17, 2011 3:58PM
Several points that this article fails to mention.  First charge backs are NOT allowed on debit or business credit cards.  One reason the industry is pushing so hard for alternatives to standard credit cards.  It is also not allowed on most foreign credit cards as this is peticular to US credit cards.  (Not all cards issued in the US are on US banks).  Second, you do NOT get the money back.  The money goes into limbo until the claim is settled.  It is settled by either having the merchant admit to the truth of your claim or fail to respond in the 90 day period allowed for settlement.  Note that you have only 30 days to file a claim from the time of notification (usually your paper billing date).  If the merchant does not agree to your claim, it is paid and you are out the money and interest.  You do now have a legal instrument you can use in the courts to recover your money, interest and time from the merchant.  Even with all these drawbacks I have successfully gotten money back from legal giants like Microsoft, Sears and AT&T.  In one case I even had a merchant call and ask to reverse the charge if I would drop my claim because he did not want this claim affecting his credit.
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