Dispute Responsibly: Disputes Cost Banks $10 to $40 Per Incident

If you find an erroneous charge on your credit card or bank statement, you have the right to dispute it with your credit or debit card issuer, as long as you do it within 60 days. There’s no charge for you to dispute and you can even avoid paying interest on disputed credit card charges while the issue is being investigated.

Banks, however, have to spend time investigating the dispute, contacting the merchant, deciding if the dispute is frivolous, then crediting your account the necessary amount. The bank’s cost of disputing is between $10 and $40 according to a New York Times article.

Merchants also suffer, especially if you go straight to the credit card issuer without first trying to resolve with the merchant. A Chargify.com infographic shows that customer chargebacks (the reversal of a transaction by the bank to the merchant) cost retailers $11.8 billion in 2009. Merchants spend almost 2 hours on each chargeback claim. Credit card issuers also charge a fee to merchants with high chargeback rates. If the rate remains high for a long period of time, merchants may lose their ability to process credit cards. Unfortunately, these costs are often passed on to all customers, not just those who initiated chargebacks, in terms of increased prices.

Sometimes you have to dispute directly with the credit card issuer, that’s why the dispute process was created. For example, if you keep getting charged for a trial service despite your attempts to cancel. Or, maybe you a product you ordered was received in bad condition and the merchant refuses to take it back. A stolen credit or debit card is another reason to go straight to your credit card issuer.

Not all disputes are legitimate, however. There are disputes from customers who’ve purchased items in good condition and simply want their money back. For many transactions, these fraudulent disputes are successful. In the case of internet purchases, this is known as “friendly fraud.” Often, banks automatically approve customer disputes under a certain amount, e.g. $25, to reduce the time and cost of communicating with the merchant about the dispute. Thirty-eight percent (38%) of merchants report a fraudulent order rate of 1% or more.

Many consumers get away with fraudulent disputes. However, some merchants, especially small businesses, may participate in a blacklist for consumers who are friendly fraudsters. If you dispute an internet purchase that you legitimately received, the merchant may put you on the blacklist. Other internet retailers may check the list, at BadConsumers.com, and decline your credit card or decline your purchase all together. Retailers can optionally notify you via email that you’ve been added to the blacklist, but there’s a chance you may not find out unless you’re denied. If you’ve been added, you can pay $99 to have your name removed.

If you have a legitimate dispute, by all means, handle it using the proper channels. First, contact the merchant to try to resolve the issuer. Then, if that doesn’t work dispute with the bank. Remember that you have 60 days to make your dispute (in writing is best to protect your rights), so if the merchant is taking a long time to respond, you may want to proceed with the bank dispute. Avoid fraudulent disputes. Not only could they end up costing in the long run, you could also end up on a blacklist, unable to use your credit card at all.

Sources: NYTimes.com, Chargify.com, BadConsumers.com