Know Your Chargeback Dispute Types: Debit Card vs. Credit Card
Table of Contents
- What are chargebacks and disputes?
- How do you file a debit card chargeback?
- Why do debit card chargebacks happen?
- What's the difference between credit and debit card chargebacks?
- What's the difference between credit and debit card chargebacks?
- What's the best way to fight debit card chargebacks?
- How can debit card chargebacks be prevented?
- Why are debit card chargebacks more difficult for cardholders?
- How many days do cardholders have to file a debit card chargeback?
Chargebacks are a major problem for retailers, and unfortunately there isn't just one type. With customers using both debit and credit cards at the point of sale, the manner in which retailers and banks handle chargebacks may differ. That's why it's important to be aware of all the little differences between credit card and debit card chargebacks. Let's go over those differences and answer some frequently asked questions about debit card chargebacks.
What are chargebacks and disputes?
A chargeback (sometimes called a dispute) is the process initiated when a customer disputes a transaction through their personal bank. If the bank sees the reason for the dispute as valid, they will grant a chargeback and typically issue a temporary credit to the account. With credit cards, this often happens immediately, but with debit cards it may take a few days.
Once the chargeback is filed, the merchant is notified, and they can respond by either accepting the chargeback or fighting it. If they fight the chargeback and win, the temporary credit will be reversed. If they accept the charge or lose the dispute, the credit will become permanent.
How do you file a debit card chargeback?
First, attempt to resolve the issue with the merchant directly if you haven't already. Most merchants will offer a refund if there was a problem with your purchase, and getting a refund is much faster than going through the chargeback process.
If the merchant isn't responding to your attempts to communicate, or won't resolve the issue, you can call your bank to dispute the charge. Make sure you have any information available to you about the transaction on hand. Your bank will ask for details about the transaction and why you want to dispute it. If your reason for disputing the charge is approved, the bank will file a chargeback.
Why do debit card chargebacks happen?
Some customers may also dispute a charge simply because they're dissatisfied with their purchase. This is not a legitimate reason for filing a chargeback, but the line between customer dissatisfaction and the product not being as described is a fuzzy one, so banks may sometimes grant these chargebacks anyway.
It's also common for customers to dispute a charge on their account that they don't recognize, even if it isn't actually fraudulent. Sometimes this happens because another authorized user on the account made the purchase. It can also be the result of a recurring charge the customer forgot about or a bad merchant descriptor that doesn't match the customer-facing name of the business.
What's the difference between credit and debit card chargebacks?
There are several key differences between debit card chargebacks and credit card chargebacks. One of the most important ones is that a debit card transaction takes cash directly out of the cardholder's bank account, while a credit card transaction merely registers a debt that the cardholder has agreed to pay back to their issuing bank.
As such, the banks have more incentive to take aggressive action on disputed credit card transactions. They make no money unless the cardholder acknowledges the debt as valid and pays it back.
It's also easier for the cardholder to see the problem as less urgent and to kick it back to their bank to deal with. When a fraudulent or problematic transaction hits a debit card account, the cardholder is immediately out real money and may be more motivated to negotiate with the merchant directly to get a refund as quickly as possible. The chargeback process, even if it's resolved in the cardholder's favor, won't get them their money back as fast as a merchant-authorized refund.
Debit and credit cards also offer different levels of fraud protection. Credit cards generally cap cardholder liability at $50, with many banks offering zero-liability cards that reimburse cardholders for the full amount of fraudulent charges.
Even though the rules for debit card chargebacks are slightly more recent, they might seem more outdated than those for credit cards.
Legally, the maximum liability for a debit card user is only capped at $50 if the card is reported lost within two days. If reported lost after more than two days but less than 60 days, the cap is $500. After that, there is no liability limit. As you might imagine, this gets a bit confusing when it comes to eCommerce, since the card might not be lost at all.
This is one of the reasons why consumers are advised not to use debit cards for "risky" purchases like card-not-present (CNP) transactions, situations where the card is taken out of the customer's sight (like restaurants), and instances where the product or services are delivered long after the card is charged, and the time to dispute the transaction may have already expired
In the interest of better serving their customers, however, many banks offer their own protections and liability limits that go beyond what is legally required. Even banks that don't have specific protections in place will often choose not to hold the cardholder liable, even if they could legally do so.
To break everything down concisely, here’s an overview of the ways in which debit card chargeback disputes and credit card chargeback disputes compare:
|Debit Card||Credit Card|
|Initial transaction||Cash direct from account||
Registers debt owed
|Cardholder liability cap||$50 to total purchase value, depending on when the card is reported lost. Liability is capped at $50 if reported within two days, $500 if reported within 60 days, and the full transaction amount if reported after 60 days.||$50|
|Dispute timeline||Generally faster, due to limited consumer protection.||
|Timeline for customer refund||Up to ten days||
Generally within 1-2 business days
Knowing that both types of chargeback disputes still come with their fair share of headaches, let’s focus on some proactive steps merchants can take to better avoid and fight chargebacks.
What's the best way to fight debit card chargebacks?
Once the dispute has entered the chargeback process, fighting a debit card chargeback isn't any different than fighting a credit card chargeback.
In either case, the best way to fight the chargeback and keep your money is to provide compelling documentation and evidence that the purchase was legitimate—and to have knowledgeable advocates such as a chargeback management company working around the clock to fight on your behalf.
How can debit card chargebacks be prevented?
Here's the good news about debit cards: Because of the differences between debit card chargebacks and credit card chargebacks from the customer's perspective, it may be easier to steer your customers toward not turning issues with debit card purchases into chargebacks in the first place.
Without question, the best thing you can do is provide top-notch customer service, so that when a customer feels like something has gone awry with a transaction they're more likely to take it up with you and ask for a refund before they complain to their issuing bank.
This way, you always have the option to give them the refund and can avoid having another chargeback against your merchant account.
Clearly articulated, readily accessible explanations of your policies in regard to returns, exchanges, and authorization holds can also help. Unexpected charges can be especially troubling for debit card users, so make sure your customers are fully informed about automatic charges, variable subscription amounts, fees, and anything else that might catch them off guard.
Your best practices for avoiding debit card chargebacks will also help you avoid credit card chargebacks—and when prevention isn't enough, you'll want a chargeback management firm in your corner, to help you win challenges and arbitration.
Want to stop the ever-growing chargeback trend and protect your revenues? Disputes don't need to be part of your accounting. Rather than write chargebacks off as a cost of doing business, download this guide and learn how to prevent them altogether.