Refusing A Credit Charge: Avoid These 4 Mistakes

More than some other forms of payment, credit card purchases have safeguards to protect you as a consumer from unauthorized charges. When you refuse a charge, you need to communicate that clearly to your credit card company. Here are 4 mistakes when refusing a credit card charge that could cost you time and money, and hurt your credit score. The information provided here is for general information only and should not be used as legal advice.

4 Mistakes to Avoid When Refusing a Credit Card Charge

  1. Not refusing the charge in writing. First, call the credit card company. But follow that up with a written letter to ensure you have communicated the situation clearly. In your letter, list the merchant’s name, amount and date of the charge, and why you are disputing it. Online resources provide help in creating this document.
  2. Refusing charges for the wrong reasons. Disputing charges due to buyer’s remorse or not qualifying for a refund isn’t allowed. The merchant has grounds to sue you for committing such “friendly fraud,” no matter how much or little the charges were that you charged back.
  3. Not doing necessary research. If you don’t recognize a charge, investigate first and foremost. Maybe you made a purchase from a retailer that goes by multiple names. Or, maybe a family member with access to your credit card made the purchase. Consumers have reported mistakenly requesting chargebacks.
  4. Not contacting the merchant before attempting a chargeback. Many retailers will work with you to correct any problem and give you a refund when one is rightfully due. This will save you the time and trouble of having the credit card company intervene.

What is friendly fraud?

Under the Fair Credit Billing Act, you can dispute credit card charges if:

  • A criminal used your credit card without permission.
  • There was a billing error.
  • You were unsuccessful resolving a problem with a merchant.

If you refuse charges illegitimately, however, this is called “friendly fraud”. The following situations fall under this category:

  • You’re dissatisfied but haven’t talked to the merchant first.
  • The purchase in question was made by a friend or family member.
  • You don’t legitimately qualify for a refund with the merchant.

What is a chargeback?

A chargeback is a refund provided to the consumer after he or she contacts the issuer of the credit card on which the charges were placed. This reversal of payment is a form of consumer protection from fraudulent activity on the part of the merchant or an individual. In other words, a chargeback can occur after a consumer disputes a credit card charge.

What percent of chargebacks are fraudulent?

According to one report, 86% of chargebacks are fraudulent. Visa has estimated $11.8 billion is lost due to friendly fraud.

In Depth

Paying by credit card is often a safer option than using a debit card, since you can dispute unauthorized charges and avoid the loss of funds when fraud occurs. However, if you don't refuse unlawful credit card charges the right way, your credit could suffer and you could actually be liable for the charges.

Unfortunately, some companies promise a product far better than what they actually deliver. Take the now-infamous 2017 Fyre music festival in the Bahamas. Organizers paid influencers like Kendall Jenner and Bella Hadid to promote the event. Guests paid tens of thousands of dollars and were promised luxury villas and delicacies. However, they arrived to tent accommodations, port-a-potties, pre-packaged meals, and feral dogs roaming the wet grounds.

Many Fyre attendees demanded refunds from organizers Billy McFarland and rapper Ja Rule. Some said, however, they then resolved the situation by refusing the charges with their credit card companies.

You may not have attended this notorious event. Nevertheless, you may have been victimized in some other bait-and-switch situation. If you don't handle it properly with your credit card company, you could lose thousands of dollars and your credit rating could plummet. Don't let that happen. Here, we list four mistakes to avoid when refusing credit card charges.

Mistake #1: Not putting things in writing. If you see a fraudulent charge, call the credit card company immediately. However, follow up the call with a formal written letter explaining why you are refusing to pay the charge. Don't delay in creating this document. Get help with writing this letter by consulting our full guide to refusing a credit card charge. You can find it right on this page, below this video.

Sending a formal letter to the credit card company will help ensure you have communicated the situation clearly. Like with the Fyre festival, maybe you received a bait-and-switch product or service. Or, maybe there are random charges you did not make in the first place. The credit card company will use your documentation in its investigation.

Mistake #2: Refusing charges without a legally valid reason. Requesting a refund for an illegitimate reason is called "friendly fraud" and costs the merchant. You might experience buyer's remorse, or maybe you don't qualify for a refund. It can be tempting to refuse the charge with the credit card company to obtain a refund. Know that this isn't a good option. Unfortunately, many consumers think it is, as merchants attributed 31% of fraud losses to friendly fraud.

And if you don't think that's enough of a reason not to commit such friendly fraud, know that you can be prosecuted for it. The merchant simply needs reasonable proof that chargeback fraud occurred for any amount of money. While we aren't lawyers and this isn't legal advice, this fraud may be considered either a criminal case or a civil suit. Prosecution is common enough for people doing chargebacks or partaking in bigger schemes that involve chargebacks.

Make sure you're not committing friendly fraud, even unknowingly. For a list of what qualifies as friendly fraud, refer to our full guide to refusing a credit card charge. Scroll beneath this video to read it.

Mistake #3: Not doing necessary research. Do you see a charge on your credit card from a retailer whose name you don't recognize? Rather than rushing to refuse the charge, google the merchant's name. Perhaps you truly did make a purchase at the store, and it goes by more than one name. Also, check if your spouse or anyone else with access to the card may have made the purchase.

Consumers have asked online what to do after they have mistakenly disputed credit card charges. One man reported refusing a 700-dollar phone bill charge on his credit card, only to realize later it was a legitimate charge made by a close family member. If this happens to you, contact the credit card company and tell them it was a mistake. They will tell you what needs to be done from there.

Mistake #4: Not contacting the merchant first. According to one report, only 14% of consumers contacted the merchant before requesting a chargeback. Many retailers are more than willing to work with you to solve any problems. They know their good name relies on happy customers. Businesses also want to avoid having money debited from their account due to chargebacks.

In many cases, it is only fair to give retailers a chance to redeem themselves. "The consumer owes the merchant one tangible shot, one wholehearted best effort to make things right," industry consultant Jim Van Dyke told The New York Times. If you reach out to the merchant first, you could very well be saving yourself time and maybe even money.

In all, knowing the proper rules when refusing a credit card charge is important before you begin the process. For more tips and guidelines, check out our full guide to refusing a credit card charge. Get started now below this video.

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