Chargeback - Criticisms

Criticisms

Unscrupulous consumers may abuse the chargeback mechanism at the expense of merchants. For example, consumers who experience buyer's remorse, or engage in other forms of friendly fraud, may habitually reverse transactions.

Credit card issuers often are unable or unwilling to properly process chargeback responses (to the card holder's chargeback) by merchants with the result that the card issuers in many cases accept reversal of the merchant chargeback even though the card holder's chargeback claim is valid. Card issuers often don't follow the card association's procedural rules (published online) applicable to the parts of the chargeback process after the initial chargeback. This is in some cases a violation of Treasury Regulations Z (credit cards) and E (debit cards) and the card holder may in those cases be able to reaquire the chargeback funds from the card issuer despite its (now) inability to collect the funds from the merchant's account due to the card issuer's failure to fully comply with the chargeback rules. If a card holder finds that the card issuer fails to comply with chargeback rules, he should file a complaint with the relevant state and federal regulators (e.g., the FDIC, the Controller of the Currency, the Federal Reserve), after first determining which regulator supervises the card issuer's operations.

Card issuers who file a chargeback with an identity-theft related reason code have no obligation (and in fact have financial disincentive) to report the consumer's account as compromised. As a result, unscrupulous consumers have an incentive to report any unwanted item on their bank or credit card statement as fraudulent.