Return Item Chargebacks: Not Your Usual Kind of Chargeback

Table of Contents

  1. What Is a Return Item Chargeback?
  2. How Do Return Item Chargebacks Affect Merchants?
  3. Five Ways to Prevent Real Chargebacks
  4. How Much Is a Return Item Chargeback?
  5. Is a Return Item Chargeback the Same as an Overdraft Fee or NSF Fee?
  6. Is a Chargeback a Refund?

Whenever a merchant hears about a new type of chargeback they're not familiar with, it's natural to be a bit concerned. It could be something that's been sneakily stealing revenue from right under the merchant's nose. Something that the merchant could have taken steps to fight and prevent if only they'd been informed. Fortunately, that's not the case when it comes to return item chargebacks.

When we talk about credit card chargebacks, we usually break things down into three broad categories: true fraud, merchant error, and friendly fraud. If you're wondering which category return item chargebacks fall into, the answer is none of the above. In fact, return item chargebacks aren't really chargebacks at all. So, what are return item chargebacks, and what do merchants need to know about them?

What Is a Return Item Chargeback?

A return item chargeback is simply a fee for a check that has been rejected. Specifically, it's a fee charged by a bank to a customer who deposits a bad check. This fee is also sometimes called a deposited item returned fee.

The use of the word chargeback here is misleading, since return item chargebacks have nothing to do with the actual chargeback process. To make things even more confusing, there's no commonly accepted term for these fees, despite the fact that most banks charge them. Here are just a few of the names different banks use for this fee:

  • Return item chargeback
  • Deposited item returned fee
  • Returned check fee
  • Cashed/deposited item returned unpaid fee
  • Rejected check fee
  • Chargeback check fee

The chargebacks you're used to dealing with involve a transfer of funds from the merchant account to the cardholder's account. The cardholder makes a claim with their bank that the transaction was illegitimate or they didn't get what they paid for, the bank initiates a chargeback, and the merchant either fights the chargeback or accepts the loss of revenue.

New call-to-actionIn contrast, return item chargebacks begin when you attempt to deposit a check received into your account. If the person who wrote the check doesn't have sufficient funds in their account to make the payment, the check will bounce. The person who wrote the check will be charged a non-sufficient funds fee, and you will likely be charged a fee for whatever your bank's version of a return item chargeback is.

It's fair to wonder why you should pay a fee for depositing a check you had no reason to believe would bounce, and some have suggested that it's just another way for greedy businesses to nickel-and-dime their customers out of as much money as possible.

According to the banks, however, it's your responsibility to contact the person who wrote the check and make sure it's valid before depositing it. Of course, most people would consider that rude, and if the person lies or is mistaken in telling you they have enough funds, you're still on the hook.

According to Nessa Feddis with the American Banker's Association, the bank incurs costs when processing a bad check, and trying to recoup those costs from someone who just bounced a check isn't likely to work, so instead, they take the money from the customer who deposited it.

How Do Return Item Chargebacks Affect Merchants?

From a merchant's standpoint, there's little to be concerned about. These fees are rare in the first place, and the use of checks has swiftly declined over the last two decades. It probably won't be long before checks themselves are a thing of the past, and return item chargebacks along with them.

If you do see the term return item chargeback on an account statement, just know that it's the result of depositing a bad check, not anything related to a disputed credit card purchase.

It is important to be familiar with the concept, however, as the existence of these other "chargebacks" may cause confusion when you're talking with customers or bank representatives who may be less acquainted with merchant account chargebacks.

They also remind us that customers frequently deal with bank fees and mysteriously named charges on their card statements that can cause mistrust and uncertainty, leading to a more aggressive attitude toward disputing charges. This might be a motivating factor in many instances of "friendly fraud" chargebacks.

The customer may not be trying to defraud the merchant or deceive their bank, but rather choosing what seems like the most direct and effective method of getting their money back. Most customers aren't even aware of the negative effects that chargebacks can have on a business.

Five Ways to Prevent Real Chargebacks

While return item chargebacks aren't a cause for concern for merchants, real chargebacks certainly are, and we would be remiss if we didn't include a few simple tips to help merchants prevent them.

Use a Clear Billing Descriptor

As we've just seen with "return item chargebacks," vague or misleading lines on a card statement can lead to misunderstandings. Don't leave any chance that a customer might dispute a charge because they don't recognize what it is on their statement.

Learn How To Fight Them The Smart WayMake sure your billing descriptor matches the name customers see when making purchases, and include a customer service phone number if possible. Dynamic billing descriptors can also help avoid customer confusion.

Provide Fast and Helpful Customer Service

Creating the perception that your business is faster, friendlier, and easier to deal with than their bank's customer service department can help steer them away from asking for unnecessary chargebacks.

On the other hand, if a customer is on hold for an hour trying to reach the merchant's customer service department, they'll often give up and contact their bank instead.

Have a Clear and Generous Return Policy

Articulate a clearly spelled-out return policy and make it available on your website, in your store, on your receipts, and anywhere else you think your customers might look for it. You want to encourage them to come back to you with any problems or second thoughts about their purchase rather than going directly to their bank to file a chargeback.

In addition, customers will come to your business with certain expectations about the circumstances that might warrant a refund and the process involved. For retail products, the historical trend in e-commerce has been toward making return policies more and more generous.

For example, it's now standard practice for the merchant to take on the costs of return shipping, something that would have been unheard of in the early days of e-commerce.

If a customer has a problem that they believe should entitle them to a refund and the merchant fails to meet that expectation, they'll often file a chargeback instead. That's not to say you have to be a complete pushover, but you should ensure that your policies aren't consistently falling well short of customer expectations.

Follow Payment Processing Protocols Carefully

If possible, use a processor that offers fraud detection and seller protection services, and train your employees to carefully follow their protocols for card-present and card-not-present transactions.

Fight Illegitimate Chargebacks

When chargebacks are unavoidable, a chargeback management company can be there to help you understand them, fight them, and prevent them from happening in the future — but when you can reduce chargebacks simply by providing excellent service and communication to your customers, that can pay off in more ways than one.


How Much Is a Return Item Chargeback?

The cost of a return item chargeback (AKA deposited item returned fee) is typically between $10 and $20 for domestic checks and between $15 and $40 for foreign checks.

Is a Return Item Chargeback the Same as an Overdraft Fee or NSF Fee?

No. A return item chargeback is charged to the person who deposited the check. Overdraft fees and non-sufficient funds (NSF) fees are charged to the person who bounced the check or otherwise authorized a payment that they didn't have enough funds to fulfill.

Is a Chargeback a Refund?

Chargebacks are not refunds. They are forced reversals initiated by banks, whereas refunds are willing returns of funds from the merchant.

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