Business News Select | SMPost | Terms

Term: Chargeback Period

12 Jan 2015

The timeframe during which a credit card issuer can dispute with the merchant a credit card transaction that the cardholder has reported as invalid. Chargeback periods vary by payment processor and by transaction type, but are typically up to 180 days or six months. If a chargeback is completed, the merchant loses the money from the sale and the charge is credited to the customer’s credit card account. Once the chargeback period has expired, however, the consumer can no longer initiate a chargeback.

A chargeback is initiated when a consumer disputes a credit card transaction within the timeframe allowed by the issuer, and a chargeback occurs when the issuer forces a merchant to refund a consumer’s purchase. A consumer might dispute a transaction if the merchant accidentally charged them twice for the same purchase, if they bought something online but never received it, or if a merchant continues to bill a customer for a canceled subscription, among other reasons. Chargebacks can be for the full amount of the original transaction or a partial amount.

Chargebacks are meant to protect consumers, and they do successfully serve this purpose in many cases. However, chargebacks also represent a significant problem for merchants. Most consumers do not attempt to resolve the problem with the merchant first; instead, they simply request the chargeback through their credit card issuer. This means the merchant has to pay the issuer a chargeback fee that may have been avoided if the dissatisfied customer had worked with the company directly.

Another problem is that many chargebacks are fraudulent. For example, a consumer might state that they never received an online purchase and try to get a refund when they actually did receive the item, a practice called “online shoplifting.” If customers request too many chargebacks from the same business, the payment processor might assume that there is a problem with the business and refuse to process any further credit card transactions. This outcome creates a major problem for a business that relies heavily on the ability to accept credit card payments, such as an online business. Chargebacks also cost companies money, sometimes legitimately and sometimes not, when the consumer wins the dispute.

Chargeback periods vary depending on the policies of the payment processor (such as Visa or Mastercard) and the type of transaction. For example, Mastercard has a chargeback period of 120 days from the delivery date for goods that a consumer doesn’t receive or disputes the quality of. The chargeback period is also 120 days for many other problems, such as an incorrect transaction amount or duplicate transaction. Visa also has a 120 day chargeback period for such transactions. Both processors have shorter chargeback periods for problems such as the merchant providing unclear or illegible transaction information to the processor or accepting an expired credit card.

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