December 11, 2023

What is a Transaction Dispute & How to file one?

Picture this: You open your credit statement to review your monthly charges and spot a transaction you didn’t make. What now?

Credit cards from issuers like Mastercard and Visa are mostly safe thanks to advanced protections, but you may still encounter unauthorized charges.

That’s why you should always check your bank statements and credit accounts every billing cycle, just to be safe. If you come across an unknown charge, you’ll need to dispute the transaction to reverse it.

If you find anything fraudulent, don’t panic; we’re here to help. We’ll cover potential unauthorized card transactions, transaction disputes with merchants, and how to get your funds back.

What is a Transaction Dispute?

A disputed transaction is when a credit card holder — that’s you — formally makes a complaint about a purchase that a merchant has reported.

There are many reasons why this can happen, including fraud or unauthorized charges. However, you may also dispute a transaction if an item you purchased online never arrived, or you received a defective or broken item.

Disputed transactions help ensure the safety of online banking. A card issuer will investigate the disputes and reverse fraudulent charges.

The right to file a complaint and receive reimbursement is protected by law, so you can always file a dispute for questionable transactions, including debit card transactions and bank transactions. Filing a dispute doesn’t impact your credit report, but your score may change depending on the outcome.

However, you cannot dispute charges for any rhyme or reason. Dispute investigations can take 30 or more days to be resolved. Tracking your expenses will help you detect fraudulent charges early and help you stay financially healthy.

How to spot unauthorized transactions

One of the most effective ways to discover unauthorized or fraudulent transactions on your credit report is to sign up for a credit monitoring service. It’s like an always-on notifications system to help you review incoming transactions.

Credit monitoring tools can also help you find new accounts opened in your name, a common problem in identity theft cases.

What qualifies as a dispute?

Three primary types of complaints qualify for dispute and are honored by most financial platforms, merchants, and providers:

Billing errors

Even with modern technology, mistakes happen. That’s where these disputes come in handy. The Federal Trade Commission (FTC) defines a billing error as one of the following:

Charges listing the wrong details, like dates and amounts
Charges for goods or services that were not delivered as agreed upon
Mathematical errors
Failure to post payments and credits
Failure to send bills to your current or correct address, as long as the creditor has been given your change of address in writing at least 20 days before the end of the billing cycle
Any charge that you’ve requested a written proof of purchase for, along with claim errors or clarification requests

Fraudulent or unauthorized charges

Any charges that were not made by the cardholder and were unauthorized are considered fraudulent. Federal law states your responsibility is limited to $50 for unauthorized charges.

Preferred creditors will not charge you or hold you accountable if your card is lost or stolen. That’s why it’s vital to research your options before choosing a creditor or financial provider.

Dissatisfaction with quality

You can’t outright file a dispute or claim if you don’t like a product, but there is some recourse if the product is of subpar quality. Anything damaged or nonfunctional may fall under that umbrella. There are some requirements for this type of dispute, however:

The disputed transaction must exceed $5.
You must have “made a good faith attempt” to resolve the issue.
You must have bought the item in your home state or within 100 miles of your billing address.

Note that these are only the protections afforded to you by the federal government. You may have additional rights under your state’s laws.

How to Dispute a Transaction

Say you find an unauthorized charge on your credit billing statement. What happens during the disputing process? Can you get your money back through a refund? Here’s a basic outline of the dispute process:

1. Filing the dispute. First, the cardholder (you) has to contact the issuer (your bank or credit card company) to begin a dispute. Depending on the creditor, you may be able to file a dispute entirely online, or you may need to call a customer support hotline and speak to an actual representative.

2. Investigation. After you file the dispute, the creditor conducts a minor investigation to verify whether the transaction was genuinely unauthorized. They examine your spending habits to find evidence if someone else used your card. For example, if the transaction happened in an entirely different country, that would stand out as a red flag.

3. Chargeback. If the issuer agrees a charge is fraudulent, the transaction will be reversed through a chargeback. That means the issuer charges the merchant for the transaction via their financial acquirer or bank. The merchant is liable for the chargeback fees.

That said, the issuer can hold you liable if they determine the charge is valid.

Disputes vs. chargebacks: What’s the difference?

Here’s where things can get confusing. “Credit card dispute" and "chargeback" are often used interchangeably, but they aren't the same thing.

The credit card dispute process is protected by federal law and offered as an official consumer protection. Chargebacks are a temporary safeguard put in place by card brands like Visa, Mastercard, and Discover. Chargebacks often lead to a representment process, where the merchant is allowed to respond to inaccurate claims.

All chargebacks are transaction disputes, but not all transaction disputes are chargebacks. For example, if you dispute transaction details and then resolve the issue via an agreement with the merchant, a chargeback may not occur.

Filing a Credit Dispute: What to Expect and Why It May Be Denied

If you want to dispute transaction details or submit a credit dispute with a merchant, you have to contact your financial provider, aka your credit card issuer.

How you do this depends on the company. Some may allow you to file a dispute online through your digital account via a website or mobile app. Others may require you to reach out via a phone hotline or customer support channel.

You can also file disputes with banks and other payment providers. For example, financial apps like PayPal or CashApp allow you to file a dispute through their official channels. Can a dispute be denied?

Yes, banks and creditors can deny a transaction dispute after their investigation, leaving you liable for the charges instead of the merchant. Some reasons why this might happen include:

Account or card requirements
An invalid reason for a dispute
International purchases
Suspicious or falsified claims
Potential red flags

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Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

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