Have you ever checked your bank statement and noticed you were charged the wrong amount for something? Or, felt as if a merchant didn’t hold up their end of the bargain? Maybe you see a transaction that you don’t recognize at all.

If you’re using digital payments like debit or credit cards, the payment dispute process is something you should know about. Not only do you have the ability to file a dispute through your financial institution, but you also have the legal right to do so under certain laws.

If you’re curious as to how the payment dispute resolution process works or need some guidance on filing a dispute, we’ll walk you through the steps in this guide.

Questions answered in this article:

  • What’s the difference between a chargeback and a dispute?
  • What can I file a dispute for?
  • How can I dispute a payment?
  • How does a dispute work?
  • How long does a dispute take?
  • Can you cancel a dispute?

Chargeback vs Dispute - What’s the Difference?

Sometimes, people believe a chargeback and dispute hold the same meaning and may use the two words interchangeably. However, each term represents a distinct process. Specifically, a chargeback is just one part of the dispute process.

A dispute, or payment dispute, is an action taken by a cardholder claiming a transaction on their card statement is wrong. For example, if you ordered a product online and it never arrived, you’d want to open a dispute with your bank.

On the other hand, a chargeback is a forced payment reversal that results from a dispute and is carried out at the banking level. This is when a bank investigates a disputed charge, determines if the claim is valid, withdraws the transaction amount from the merchant’s account, and returns it to the cardholder. A chargeback is just one potential outcome of a dispute.

The key takeaway is that a dispute is an action initiated by the cardholder, while a chargeback is a process primarily performed by the bank. In this guide, we may refer to both the dispute and chargeback processes together as the payment dispute resolution process.

The payment dispute resolution process at a glance

The first step in the payment dispute process occurs when a cardholder notifies their card provider of a problem with a posted transaction. Dependent on the type of dispute, you may be able to dispute a transaction up to 60 or 120 calendar days from when the transaction has been posted. If you are unsure about how long you have to dispute a transaction, you can refer to your cardholder agreement or contact your card provider.

Depending on various factors that we’ll dive into later, the entire resolution process can take up to 90 days from the time a cardholder first initiates a dispute. While 90 days is the expected timeline for the dispute and chargeback process to complete, many disputes are resolved more quickly. This timeframe is implemented by the four major card networks: Visa, Mastercard, American Express, and Discover.

Once a cardholder identifies the wrongfully processed transaction, gathers evidence to support their claim, and notifies their bank, the bank will investigate the claim and determine validity based on the provided information.

If the bank finds the grounds for the dispute valid, they will begin the payment chargeback process by submitting the dispute to the respective card network. The goal is to assist the cardholder in recouping their funds from the merchant.

In addition to the card networks, various laws and regulations also give consumers protections against illegitimate charges and set deadlines for notifying a card provider.

What can I file a payment dispute for?

There are several reasons that make a transaction eligible for dispute. A valid dispute is likely to fall under one of the following descriptions:

  • Unauthorized/fraudulent transaction - a transaction on your account that you do not recognize and suspect is the result of card theft or fraud
  • Credit not processed - the merchant has not credited funds back to your account after agreeing to a refund
  • Merchandise/services not received
  • The merchandise/service is not as described or defective
  • Canceled recurring transaction - the merchant has debited your account after you’ve requested a cancelation, typical of subscription-based charges
  • Duplicate processing/paid by other means - a transaction was processed more than once on your account or paid for with another payment method
  • Canceled merchandise or services - your purchase was canceled, but you haven’t received a refund
  • Misrepresentation - the item/service was falsely advertised by the merchant

How to dispute a payment

Finding an erroneous transaction on your bank statement can be alarming. Before deciding to dispute a payment with your bank, it’s vital to ensure the purchase was, in fact, illegitimate. Once you’ve confirmed this, you must contact your financial institution to initiate the dispute.

When possible, however, we also recommend reaching out to the merchant before proceeding with the dispute resolution process, as they are frequently able to assist, resulting in a much faster resolution.

There are several boxes you’ll want to check off before opening a dispute, including gathering evidence. Let’s dive into the specifics so that you can be fully prepared should you need to begin the dispute process.

1. Identify the transaction

It's important to ensure you have grounds to dispute a transaction before doing so. Inaccurately reported payment disputes can yield unwanted outcomes. For example, some memberships-based merchants may suspend a user's account if they learn a chargeback has been incorrectly filed. One study estimates that by 2023, 60% of chargebacks will result from unwarranted disputes. Reaching out to the merchant to resolve directly without opening a formal dispute is always an option if you’re in doubt.

If you don't recognize a transaction, you should first verify that a merchant isn't billing you under an unfamiliar name. You should also check that the unfamiliar transaction wasn't made by an authorized user on your account. Another common mistake is encountering a recurring subscription payment that you forgot you set up on your account. Any of these errors can result in unintentionally disputing a legitimate charge, which could have negative impacts.

Finally, you'll need to ensure the transaction is within the timeframe allotted for a payment chargeback. Most disputes can be filed within 120 days from the date of completion, with the exception of unauthorized claims and service or merchandise not received claims. Unauthorized claims have a dispute filing window of 60 days. The dispute filing window for service or merchandise not received claims ranges from 120 days to 540 days. If you are unsure if your dispute falls within the allotted timeframes, we recommend reaching out to your issuing bank for clarification. Other legal or regulatory deadlines may apply, as well.

2. Gather evidence and supporting documents

Depending on the type of disputed transaction, evidence should be gathered to support the dispute. In the case of unauthorized/fraudulent transactions, this step may not be possible. It is effective to have these supporting documents, as doing so can help your issuing bank build a stronger case on your behalf throughout the payment dispute resolution process.

These are some examples of evidence that can help further support your claim when filing a dispute:

  • Receipts, order confirmations, subscription details, or any document that shows what was ordered, the cost, and the date it was purchased
  • Written correspondence attempting to reach out to the merchant requesting a refund even if the merchant does not respond or provides a resolution
  • Shipment tracking information
  • Return tracking information for returns
  • Pictures of a service or merchandise purchased that is defective or not as described
  • Screenshots of false advertisements

3. Report the transaction

Once you have gathered the information to help support your claim, you should immediately report the transaction you wish to dispute to your issuing bank. If a transaction is unrecognized or fraudulent, there is no need to provide any evidence, and you should report these types of payment disputes to your issuing bank as soon as possible.

How does a dispute work?

When a cardholder files a dispute with their issuing bank, the first thing the bank must do is determine whether the claim is legitimate. The bank may then move the dispute to the chargeback phase, giving the merchant the opportunity to respond to the claim.

However, not all disputes necessarily result in a chargeback. For example, if a cardholder reaches out to a merchant to request a refund, the merchant might determine that refunding them is more cost-effective because chargebacks can rack up unnecessary expenses for merchants. Merchants can expect to pay anywhere from $20-50 per chargeback and in some cases, might even be charged up to $100 per chargeback.

How long does a dispute take?

Once reported to your bank, the payment dispute resolution process can take up to 90 days to complete depending on the type of chargeback filed and the merchant’s response. However, more complex cases can take longer.

What is the chargeback process?

The outcome of payment your dispute may be dependent on the various steps of the chargeback process, which is handled between your bank, the card network, and the merchant.

Step One. The issuing bank must first submit a report to the card network, in what’s called the First Chargeback phase. The merchant will normally have 30 to 45 days to respond to this initial chargeback document, and has the opportunity to submit a chargeback reversal letter to the network, providing their explanation and supporting evidence.

Step Two. The chargeback will move into the next phase, called the Second Presentment if the merchant responds by rejecting the claim. This step gives the bank another 30 to 45 day timeframe to submit a rebuttal.

Step Three. The chargeback will move into the Pre-arbitration phase if the bank submits a rebuttal to the merchant’s response.

Step Four. And if the merchant follows up with additional evidence during Step Three, the chargeback will progress to the arbitration phase, in which the card network steps in as an impartial third party to determine the outcome of the case.

This arbitration phase can be expensive for both parties involved, but even more so for the losing party. Arbitration fees vary by network, but Mastercard, for example, charges a $500 fee to the losing party. For this reason, both merchants and issuing banks try to avoid progressing a dispute to this phase.

It’s important to note that during any point in the payment chargeback process, if one party does not respond within the given timeframe, the chargeback will be closed in the other party’s favor.

As you can see, a dispute can be lengthy to resolve if it progresses through these various phases of the chargeback. However, as the cardholder, the burden is not on you to complete any of these steps. Your bank will be communicating with the card network, but still may contact you along the way for additional information.

Can you cancel a dispute?

You can request to cancel a dispute simply by contacting the financial institution you filed it with. If a chargeback is already in progress, the bank will request to close the chargeback on the corresponding card network in which it was filed.

A cardholder might want to cancel the disputed amount for a variety of reasons. One instance might be if you filed a dispute because you didn’t receive the merchandise but later received it. You'd want to contact your bank to close the dispute.

However, you don't necessarily need to provide a reason for canceling a dispute. As long as the merchant hasn't already accepted the chargeback before the first chargeback timeframe expires, your bank should be able to help you cancel your dispute.

Feel secure paying with Privacy Virtual Cards

Privacy allows you to create unique, 16-digit virtual card numbers that can be used to checkout with merchants online. Rather than using your own banking information, you can generate Privacy Virtual Cards to use at any place you would use a regular credit or debit card and shield your real card numbers. Masking your card information from merchants can help protect you from potential security breaches or other unwanted charges.

By empowering you to pause or close your virtual cards at any time, Privacy gives you more control over your finances. You can even set spending limits on Privacy Virtual Cards so that a merchant cannot debit you for more than you’ve agreed to.

Privacy’s payment dispute resolution process

Now that you’ve familiarized yourself with the payment dispute process, you may be wondering if you can open a dispute for transactions made using a Privacy Virtual Card.

In addition to all of the robust security features offered by Privacy Virtual Cards, users still have the ability to dispute a transaction similar to how they would with a traditional bank. Although many banks issue cards directly, some have partnered with tech providers like Privacy to issue cards.

While Privacy is a card provider, not a bank, we follow a similar payment dispute resolution process. However, such partnerships make us liable to our partner banks’ rules and regulations.

Should you run into an issue with a merchant, we make it easy to open a dispute. Once you’ve taken that initial step, our team will investigate your claim and may file a chargeback with the card network. We work diligently to ensure our users get the best possible outcome when a claim is filed. And during any point in the process, we may refund the disputed amount to you.

How to open a dispute for a transaction on your Privacy Account

If you would like to dispute a transaction on your Privacy Account due to an issue with a charge on your account, you can do so by accessing your account on our desktop site. Then, select the transaction you’d like to dispute, and click “Open Dispute.” Follow the prompts and answer any questions to the best of your knowledge. Be sure to include any evidence that you may feel supports your claim, including receipts, tracking numbers, and any correspondence you’d had with the merchant.

A member of our team will then review your dispute claim immediately after it is filed. Should we need more information from you, we will reach out via email. Otherwise, we will update you on the progress and resolution of your claim as soon as possible.

The payment dispute resolution process can be tricky, and we certainly don’t expect you to remember all the steps. This article aims to offer you a holistic view of the payment disputes lifecycle and to remind you that should you need to open a dispute through your Privacy Account, our team will be happy to help.

Looking for ways to protect your finances and make secure payments online? Sign up for Privacy today!

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