What is the dispute process?

We're going to get straight to the point with this post and break down each step that happens when a customer submits a dispute to their bank.

This process is the same whether a client files a dispute against you or if you file one against someone.

  1. The debit (transaction) posts to the account. It has to actually "post" to the account. If the transaction is still in a "pending" status you cannot submit a dispute as pending transactions can still "fall off" the account, the amount can change (ex. when you add a tip to a purchase), etc. The bank will not start anything at all.

  2. The debit posts to the account and they contact the bank and start the dispute process.

  3. The dispute has to be opened within 60 days from when the customer's statement is generated. This is why it's very important to review your statements. Banks typically try to open the dispute for you if it's past 60 days, but they are not legally required to and I have seen some banks deny disputes for this reason.

  4. The customer tells the bank why they are disputing the transaction. There are only a few reasons a consumer can use. Fraud/unauthorized, duplicate charge, charged the wrong amount, canceled service, goods/services not rendered or received, or the consumer needs clarification on what the debit is b/c the description is ambiguous. This is why it's very important when a platform allows you to customize the description that will show on the charge is very clear - PayPal is one example who allows you to customize your own description that will show on the consumer's account. Ex. My business is Urban Consulting, LLC but I've customized my description to MLW Consulting Business.

  5. The customer's bank sends the information to your bank and your bank immediately pulls those funds from your account and places them in a GL for holding while the dispute is investigated. You will not receive prior notification that the bank is pulling the funds. You will be notified after the fact and provided with all applicable information of what is going on.

  6. The customer's bank has 10 days to resolve the dispute and make a decision. If they cannot do that within 10 days, they have to provide the customer with provisional credit (it comes from their bank, not you or your bank) and inform them that it will take longer and they then have up to 90 days to complete the investigation.

  7. You can certainly attempt to contact the customer and resolve the situation. Sometimes they don't recognize the charge b/c the description is not clear, you wouldn't offer a refund to them for whatever reason, or they didn't want to ask you for a refund for whatever reason or they just don't want to pay any longer. It is a good idea to try and resolve the situation with the customer before the bank makes a decision.

  8. The bank will ask for proof from each party. The customer's receipts, proof of cancelation, etc, although the customer is not required to provide any proof and can still "win".

  9. You need to provide absolutely anything and everything you have, nothing is too small.

  10. The bank then determines who will "win".

  11. If the customer "wins" the funds sitting in the GL will then be sent back to the customer's bank account and the dispute will be closed.

  12. You cannot reopen a dispute. IF a bank allows you to, you better thank your lucky stars!!

  13. If the charge is under $50 the customer will "win" automatically as following through with an investigation will cost more than just refunding them. Again, I'm not saying the bank will not investigate and make a proper decision, but this is a legal step that can be taken.

  14. If the customer "wins" and the chargeback of those funds leaves your account with a negative balance, you are required to make the account whole (bring it to a positive balance or just a zero balance). Not doing so will result in the account being closed after 60 days and reported to ChexSystems which will hinder you from being able to open future accounts elsewhere.

  15. If the customer wins your last option is small claims court, but it may not be worth it if the amount is insignificant.

I am going to do a separate post on this, but I briefly want to mention that if you manually type in a customer's debit/credit card yourself in an in-person situation, 99% of the time you will automatically "lose" a dispute. If you do this, understand that you are taking a huge risk. But, more on this in the next post.

Leave your comments or questions below so I can answer them and clarify anything or give you advice/direction if you are going through this situation.


Your Compliance Bestie

>> This post is informational and educational only and is not legal advice, nor does it create a consultant-client relationship. Please consult your legal counsel for further guidance on this topic. <<

>>Read our legal disclaimer here.<<

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