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Chargeback schemes

Purchases made on credit and debit cards can be reclaimed in certain circumstances, under a scheme known as 'chargeback'. So how does the scheme work and what are the restrictions?

Chargeback refers to the process which allows consumers to challenge and claw back payments made from their debit and credit card accounts when things go wrong (eg goods or services paid for are not delivered).

Rather than being a legal right, chargeback forms part of card scheme rules (ie set out by Visa, Mastercard, Amex etc) to which the card issuer is a party. A consumer who wishes to dispute a transaction must contact their card issuer to make a chargeback claim.

It should be noted that chargeback is separate to consumer protections under Section 75 of the Consumer Credit Act 1974 which only relate to credit card purchases over £100. For further information read The Consumer Credit Act.

Some of the possible situations which chargeback may cover include:

  • if a company goes into administration and consequently fails to deliver goods or services
  • if goods are defective or not as described
  • failure to deliver goods or services paid for
  • transaction amount was incorrect or duplicated
  • if the transaction was fraudulent

But it should be noted that chargeback schemes vary (eg between Visa and Mastercard), so the circumstances under which the scheme can be used may differ.

Unlike the Section 75 protections for credit card purchase, there is usually no minimum amount which applies to disputed transactions; purchases for under £100 are normally covered by chargeback rules.

There is generally a time limit of 120 days in which to claim a chargeback. This normally starts on the day on which the consumer becomes aware of the problem. But this is subject to an overall time limit of 540 days from the initial date of transaction.

Once again, because chargeback schemes vary, conditions and restrictions may differ.

According to the Financial Ombudsman Service card issuers should attempt a chargeback if the card holder has challenged a transaction and - taking account of the relevant card scheme rules - there appears on the face of it to be a fair chance that a chargeback request may succeed. If the card issuer refuses to process a chargeback, or fails to make a successful attempt, the card holder can complain to the Financial Ombudsman Service if the card issuer has not resolved the dispute within eight weeks.

The loading of money from a credit or debit card to PayPal is considered to form the card transaction; the payment from PayPal to the retailer is a separate transaction. As such, purchases made using PayPal are generally not covered by chargeback schemes and consumers will normally have to use the PayPal dispute resolution scheme instead. If this fails - and if the PayPal account was empty prior to making the purchase (and it is therefore clear that the full amount of a transaction has derived from a specific card) - it is possible to make a chargeback claim although this will be at the discretion of the card issuer.