chargeback limits

What are Chargeback Limits in 2022? A Merchant Guide to Chargeback Limits

To put it bluntly, chargebacks are a hassle for merchants. What is meant to be a protection for consumers can often turn into loss of revenue for legitimate transactions. What’s worse, the burden of proof can often fall to the merchant, as many processors might give consumers the benefit of the doubt when it comes to these claims. That’s not to say that fraudulent chargebacks can’t be disputed, but more pressure is applied to the merchant. Fighting chargebacks isn’t simple, but it is important to do so.

And in order to do that, you must understand the different rules and time limits for chargeback disputes.

That’s why this article will cover the general guidelines for the time limits on chargeback claims, how each card processor handles them individually, and the factors that can affect specific claims.

Why Are there Time Limits on Chargeback Claims?

Chargeback procedures were created as a safety net to protect consumers against fraudulent transactions and dishonest merchants. By law, cardholders have a minimum of sixty days to contest unauthorized charges under the Fair Credit Billing Act of 1974.

However, banks, card networks, and processors are able to set their own timeframes as long as they meet the minimum legal standards. Card processors, for example, normally give cardholders 120 days to dispute a charge. That is twice as long as the legal minimum. Furthermore, merchants also have time limitations for disputing chargebacks.

Unfortunately, these regulations are not universal. Depending on the card network, region, processor, bank, product type, and other factors, retailers might have different chargeback time restrictions. Additionally, the chargeback’s reason might change the deadline as well.

This can make the process of filing chargeback claims or disputing them confusing for some.

What Is the Time Limit for Cardholders to File a Claim? And What is the Limit for Merchants to Dispute a Claim?

Consumers have relatively generous deadlines for filing. A cardholder has 120 days from the date of the initial transaction or the estimated delivery date to dispute the transaction. There are some exceptions, however, which can vary by card processor. Generally, however, 120 days is the standard.

Merchants and acquirers follow different chargeback processes. Merchant response times can differ significantly depending on circumstances and the card network used.

In general, merchants will have 30 days to respond to each phase of a Visa or Discover chargeback. Meanwhile American Express limits the phases of a credit application to 20 days, while MasterCard restricts phases to 45 days.

The majority of responses must be submitted within 30 to 45 days. It should be noted that the merchant’s processor and acquirer will take up some of this time. This generally leaves merchants no more than a few days to respond.

It is not a guarantee that a merchant will get a reversal, but missing the deadline usually results in their case being dismissed.

What Factors Can Alter a Chargeback’s Time Limit?

There are different guidelines for each card network, and cardholders are prioritized in this process. However, bank brands can impose tougher deadlines on their cardholders. The processor may also adjust timelines, and the type of chargeback may also affect how much can be refunded.

Fraud, such as a stolen card or identity theft, is often the cause of legitimate cardholder disputes. According to most chargeback cause codes, you have 90-120 days to register a claim from the date of the transaction, taking into account possible shifting of start dates.

It is also possible for merchants to experience chargebacks due to processing errors. Chargebacks for these types of transactions usually have a shorter window because they are more likely to be caught by the bank or processor before reaching the consumer.

In general, retailers have 30-45 days to respond to each phase. But there are other variables to consider.

As previously mentioned, card networks are not the only entities able to regulate chargeback time limits. In addition to merchants, acquirers also have deadlines, and they may advance the merchant’s deadline to give themselves a little extra time.

For instance, Chase Bank cardholders have 60 days to challenge a transaction, compared to the network’s 120 days. Networks indicate merchants have a 45-day response window, while Chase credit card dispute time limits are 39 days.

PayPal, which can act as a credit card processor for merchants, offers customers up to 180 days to file a claim. This is 50% more time than the major card networks allow. However, the merchant must respond within seven days.

Two additional considerations apply in this case. First of all, although the chargeback time limit begins on “Day One” of each phase, merchants may not receive notification until several days afterward. Depending on the method of submission, they may also need to allow two to three days for delivery. You can see how a 30-day window could suddenly become very narrow.

Second, the date that constitutes “Day One” will be adjusted at every stage of the chargeback process. Thus, although there is a time restriction for chargebacks, it may change as the dispute moves through its various stages.

There can be no overstating this point: All the limits mentioned here are based on the most recent available data. These limits may change and may or may not apply to particular situations. At all times, check the network regulations and bank/processor standards for accurate timings.

Chargeback Time Limits per Card Network

The card networks play a significant role in limiting chargeback time restrictions. Each card brand has its own rules and vocabulary, despite the fundamental principles being the same. For each processor, the time limits have been divided into two groups: those applicable to issuers/cardholders and those applicable to merchants/acquirers. Keep in mind that any of these timeframes may be affected by exceptions.

Visa and Mastercard

The first step will be evaluating the Visa and MasterCard chargeback time restrictions:

Visa limits for chargebacks

Issuer/Cardholder: Traditionally, Visa cardholders can only file a chargeback within 120 days of the original transaction. However, for some disputes, Visa has shorter deadlines. Depending on the circumstances, claims may have to be filed within 75 days of the transaction.

120 days are given to file disputes for the following:

  • Fraud
  • Incorrect currency, transaction code, or amount
  • Late presentment
  • duplicative processing of transactions
  • Not received merchandise
  • faulty or damaged merchandise
  • A terminated subscription or recurring transaction.

Only 75 days are allowed for the following dispute reasons: 

  • Refusal of authorization, invalid data, or absence of authority
  • Card recovery bulletins for past-due, fake, lost, or stolen, cards

Acquirers/Merchants: Merchants and acquirers must react to all phases within 30 days of Day One. There is only one exception: the arbitration deadline, which is the strictest of all. If either party wants to take the disagreement to arbitration, they must do it within 10 days.

  • Merchants have a 45-day limit to submit a chargeback claim
  • Issuers have a 45-day limit to go through with arbitration after a representment process
  • If a chargeback occurs, both parties are given 45 days to request arbitration.

Mastercard limits for chargebacks

Issuer/Cardholder: Generally, MasterCard holders have 120 calendar days from the Central Site Business Date to file a chargeback. CSBD is the date when the order was shipped or the date the initial transaction was processed.

It can sometimes take up to 45 days to resolve a Mastercard dispute. Clients may have up to a year to file for a dispute.

The 120-days limit to submit a chargeback dispute applies for the following issues:

  • A variance in the quantity of a transaction
  • absence of cardholder permission
  • Processed transactions fraudulently
  • Recurring transaction cancellation
  • Late presentment
  • A purchase handled as a credit
  • Erroneous currency code
  • Dubious actions from the client
  • Contrary to description
  • Services or goods not delivered
  • ATM dispute
  • Unprocessed credit
  • Change in PIN or chip liability
  • Other cardholder disputes that are not classified

The time restriction for chargebacks is only 45 days in these cases:

  • A file of alert bulletins
  • Non-existent account numbers

Acquirers/Merchants: Mastercard chargebacks generally require merchants and acquirers to respond within 45 days of each phase. However, a request for information regarding a dispute is an exception. In those cases, merchants have 18 days to respond.

These are the time limits from the perspective of both parties:

  • 45 days for merchants to submit a chargeback claim
  • Upon receiving a chargeback representation, the issuer is allowed the same amount of time to begin arbitration.
  • In the event of a chargeback, both parties have the same 45-day limit for additional arbitration.

America Express and Discover

In comparison to Visa and Mastercard, Discover and American Express are unique in that these companies function as card-issuing banks and manage their own proprietary card networks. Visa and Mastercard are card networks that issue payment cards in partnership with member banks. American Express and Discover, on the other hand, both issue cards and process card transactions.

Furthermore, the bank that issues American Express cards is also a client of cardholders that file chargebacks with American Express. Overall, this can simplify and improve efficiency, but it also restricts the merchant’s ability to respond.

Amex limits for chargebacks

Issuer/Cardholder: Previously, American Express cardholders had no time limit for disputing a charge. Since then, the business has mandated a 120-day filing deadline for virtually every refund request. Under certain conditions, the beginning date may change, but that is the only exception. However, cardholders can only dispute transactions twice.

Acquirers/Merchants: If a cardholder contacts American Express about an issue, the bank side of the corporation will either initiate a chargeback or contact the retailer for an inquiry. If Amex accepts the chargeback dispute or if they can prove that the chargeback was invalid, a merchant has a 20-day limit to dispute the inquiry.

Amex will typically proceed directly in the majority of cases. For merchants to dispute complaints, the company does provide the same options they give consumers. When a bank determines a chargeback to be valid, the merchant cannot appeal to the card network, because the two entities are identical.

Discover limits for chargebacks

Issuer/Cardholder: Despite Discover’s primary focus on its own network and bank, it also collaborates with select issuers. As a result, the company’s chargeback procedure is comparable to that of Visa and Mastercard. Typically, Discover cardholders are given 120 days from the date of a transaction to register a dispute.

Acquirers/Merchants: Answers to the Discover inquiry must be submitted within 20 days. However, banks and processors may have more stringent deadlines. A written appeal of the decision to represent must be filed within 30 calendar days.

In case of a second chargeback, the merchant has thirty days to produce further documentation. Disputes shall be escalated to Discover arbitration within 15 calendar days of the merchant’s request.

What Are the Common Reasons for Chargebacks?

Typically, chargebacks are initiated by cardholders in cases of fraud. Some common reasons include:

  • Chargebacks are available if a credit card is lost or stolen and used to make a purchase.
  • Also, if a fraudster obtains access to a cardholder’s credit card information through phishing or a database breach, the cardholder may request a chargeback.
  • Finally, in the event that someone gains access to the payment credentials of an eCommerce account and uses them to make purchases, the cardholder may request a chargeback.

A cardholder may also be entitled to submit a chargeback if a merchant is uncooperative.

If the consumer was charged twice for the same item or if the product was damaged or lost, for example, most merchants will issue a refund as soon as they become aware of the problem. However, the cardholder may initiate a chargeback if the merchant refuses to issue a refund. Prior to disputing a charge, cardholders should attempt to resolve the issue with the retailer. Unfortunately, this may not be followed in all cases.

Chargebacks resulting from actual fraud should not be contested by merchants. Occasionally, however, a chargeback claimed by a client may be friendly fraud. In general, it is advisable to contest a chargeback if there is reason to believe that the cardholder’s fraud claims are false.

Despite the fact that merchants cannot contest legitimate chargebacks because of these flaws, they can prevent them by providing easy access to customer service that can provide reimbursements.

Chargeback Reason Codes

A reason code identifies the reason behind every chargeback. This may affect dispute time limits. For instance, some reason codes allow cardholders over a year to file. In some cases, banks must wait a specific amount of time before issuing a chargeback. For defects or “Not as Described” cause codes, the 120-day period may still apply, although “Day One” will vary depending on the circumstances.

This is especially important for retailers who use recurring payment models (subscriptions). It is possible that the merchant may provide ongoing goods or services, but only charge the customer’s card annually. Cardholders may also challenge subscription payments for several months or even years after the transaction date, as well as be able to register a chargeback months after the transaction date.

The Importance of Understanding Chargeback Time Limits

Understanding the many types and exceptions of chargeback time restrictions will require considerable time and effort, as with other aspects of the process.

But understanding chargeback time restrictions is essential if you hope to recover revenue. It is very easy to miss a deadline if you do not understand the relationship between banks, card systems, and reason codes.

Dealing with chargebacks is a difficult process for most merchants. There are strict deadlines, but not uniform ones. In some cases, the card processor’s criteria are closely followed, while in others, more stringent guidelines are implemented. Merchants can be blindsided by disputes months after they have closed a deal.

Since chargebacks were designed specifically with the consumer in mind, all merchants are presumed to be responsible until proven innocent.

Chargebacks are initiated by customers, and businesses have a limited amount of time to gather and provide evidence to contest the chargeback.

In order to effectively reverse a chargeback and recover lost money, the merchant must build a representation package that includes compelling evidence indicating that the chargeback is illegitimate and a rebuttal letter summarizing the merchant’s argument and evidence. This activity can be tricky to fit in alongside regular business activities, especially in smaller shops.

The situation may seem hopeless for retailers. There is no guarantee that a chargeback will be successful and contesting them takes a lot of time and resources. However, ignoring fraudulent chargebacks would result in a revenue loss. The balancing act often leaves merchants vulnerable. 

However, by outsourcing chargeback handling, merchants are more likely to succeed with their disputes.

Conclusion

While they are a useful tool for consumers, chargebacks represent a significant pain point for merchants. At best, they protect customers from legitimate fraud, while at worst they can cost your business significant revenue. While the dispute process can be time-consuming, merchants should dispute all chargebacks claims that they know are illegitimate.

The different time limits for each card processor doesn’t make this an easy process, but with due diligence all of the necessary information for disputes can be found.

However, it’s much better to avoid chargebacks altogether by tackling their source whenever possible.

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