Credit Card Chargeback Rights
The following information is meant to advise you generally of your rights under federal and California state law to challenge credit card charges. These rights are called "credit card chargeback rights." The federal laws are found in 15 United States Code §§ 1666, 1666i, and 1640(e) and in 12 Code of Federal Regulations §§ 226.12(c) and 226.13. The California laws are found in the California Civil Code at §§ 1747 - 1748.95.
When you apply for a Visa or MasterCard credit card, it is usually issued by a bank. Your dealings are with the bank, called the "issuing bank," and not Visa or MasterCard. In order to issue such credit cards, a bank must agree to follow Visa or MasterCard regulations, but these regulations cannot take away any of your rights under federal and state laws. Merchants who wish to accept credit cards must also follow certain guidelines, including maintaining a reserve account in the merchant bank to cover chargebacks by dissatisfied cardholders.
You may have a right, in the situations described below, to get a chargeback for fraudulent or erroneous charges from the bank that issued your MasterCard or Visa card, or from American Express or Discover Card.
In a credit transaction, a merchant takes your credit card, prints a receipt and deposits it with his "merchant bank." The merchant bank pays the merchant and sends the receipt to your issuing bank. Your issuing bank then pays the merchant bank and sends you a statement which shows all of your transactions during the period. There are two categories recognized by federal and state law under which you can resist payment; these are known as "billing errors" and "claims and defenses." Your rights are different under each.
"Billing errors" include:
- Charges you did not authorize;
- Charges for undelivered goods or services;
- Charges for goods or services different from what was represented or of the wrong quantity; and
- Charges for goods that were not timely delivered.
If you believe there was a billing error, you must, within 60 days following the date of the first statement on which the charge appears (not the date you made the charge, but the date of the issuance of the first statement showing the charge, as that date appears on the face of the statement), write a letter to your bank setting forth in specific detail why you believe there was an error in the charge. You should set forth everything regarding your dealings with the merchant - Did you respond to an ad in a newspaper, receive a telephone call, visit the store? What did the merchant tell you about what you would be receiving? Did you authorize the charge? Did you receive the goods? Were the goods different than represented? Etc. If you kept a mailer or the ad from the merchant, attach copies to your letter, along with any correspondence between you and the merchant.
If your bank receives your letter within the 60-day period (some banks extend this to 90 days, but don't take a chance), you need not meet any other condition. No geographical restrictions apply. You need not make any attempt to resolve the dispute with the merchant, and you can assert a billing error even if you have already paid your credit card balance down to zero. Your bank may ask you to send the merchandise back to the merchant or to the bank itself before it will give you a credit refund. Your bank stands in the shoes of the merchant and will credit your account while it checks to determine whether your claim is valid. If the claim is determined by the card-issuing bank to be valid, it will issue a credit to your account for the amount claimed. If the card-issuing bank finds your claim to be invalid, you may wish to contact your own bank to see if they will help. Some banks will process such requests for help because of voluntary arrangements they have reached with other banks.
"Claims and defenses" chargeback rights are also for situations where there is a problem or disagreement with your credit card transaction. Under federal and state laws, you have up to one year from the date of the statement (far longer than the 60 day limit for asserting "billing errors") to notify your bank in writing of "claims and defenses." However, unlike your "billing errors" rights, you must meet four additional conditions:
- The disputed amount must be over $50.
- You cannot dispute a charge under "claims and defenses" if you notify your bank after you have already paid your credit card amount down to zero. However, if you have paid off only a portion of your credit card bill, you can still resist payment on the unpaid balance for the charge you are disputing. For example, if the disputed charge was for $300 and your balance on the credit card was for $400, and your payment to your bank was only $150, you can still seek a chargeback for the remaining $250 under the "claims and defenses" category. Unlike "billing errors", you cannot recover any amount that you have paid (after the charge appears on your statement) that brings the remaining balance below the cost of the charge you are disputing.
- The transaction must be with a merchant who is located within 100 miles from your home or in the same state you live in. For example, suppose you go to Arizona for a vacation and while there you purchase an expensive vase using your credit card. When you get back to your home in California, you open the box the merchant gave you and find that it only contains confetti, and no vase. If you notify your bank within 60 days you can qualify for a chargeback under your "billing errors" rights. But if you wait for more than 60 days you will not be eligible for a chargeback under your "claims and defenses" rights because the merchant is outside of your state of residence (unless the merchant is less than 100 miles from your home). In California and in some other states, transactions on the telephone are considered to take place at your home and not at the merchant's place of business, no matter who placed the call. Similarly, in those states, if you fill out an order form which is to be sent to the merchant, and agree to purchase by writing down your credit card account number on the order form, the transaction is considered to take place in your home.
- You must make a good faith effort to obtain a refund or credit from the merchant before contesting the charge with the bank, for example by sending a letter to the merchant or signing a notice of cancellation that is sent to the merchant. Be sure to keep a copy of your correspondence.
Be aware that many customer service representatives are not familiar with "claims and defenses" chargeback rights. Some representatives have denied valid "claims and defenses" chargebacks that otherwise meet all of the requirements because the letter was not received within 60 days, or the merchant has filed for bankruptcy, or the merchant bank refuses to pay back the card-issuing bank because the time limits regulating dealings between the banks under Visa or MasterCard regulations have expired. None of these are proper or legal grounds for denying a valid claim for a chargeback under your "claims and defenses" rights. If you are writing your letter to the bank more than 60 days after the charge you are disputing first showed up on your credit card statement, you may want to clearly explain that you are asserting your "claims and defenses" rights under state and federal law, which, unlike "billing error" rights, are not limited to being asserted within the 60-day time frame.
If your credit card company denies your chargeback request and you believe you have met all the required conditions for a chargeback, you can file a complaint with the Attorney General’s Public Inquiry Unit.
Credit Card Traps
Many credit card issuers send solicitations in the mail that advertise favorable credit terms and seemingly low interest rates. These solicitations are not always fairly presented and may contain hidden terms. You should always read the small print and the terms and conditions before you agree to accept or activate a credit card. Be mindful of the following:
- Some credit cards are sold with a very small credit limit and large fees. Consumers soon learn that they are almost immediately over the limit, and additional over-limit fees, late fees, and increased interest rates quickly become financially burdensome.
- Some credit card companies start consumers with low rates of interest but raise the rates, sometimes tripling them, if consumers are late in making a payment.
- Some companies charge $25 to $50 for a "gold card" with a large credit limit. These are not regular credit cards but rather are limited-use cards that can only be used to purchase overpriced goods in a catalog, often requiring consumers to pay partly in cash for the products.
- Take the time to read the credit card agreement very slowly and carefully - then read it again. If you don't understand something, ask questions.
Credit Card Surcharges
California has a law, California Civil Code section 1748.1, that prohibits retailers from adding a surcharge when a consumer chooses to use a credit card instead of paying by cash. In March 2015, a federal court found the statute unconstitutional and prohibited the Attorney General from enforcing it. The Office of the Attorney General believes that this decision is incorrect and has appealed that order. However, as of now, the Attorney General cannot enforce the statute.
Although the Attorney General is enjoined from enforcing this specific statute, California law does prohibit a merchant from engaging in activity that is unfair or deceptive. So, for example, if a merchant charges a credit or debit card surcharge or offers a cash discount, but does not fully disclose this to customers prior to their committing themselves to the goods or services, or if the merchant does not clearly explain its policies regarding debit and credit cards, the merchant may be violating California law.
If you know of a merchant that you think is improperly charging people for using credit or debit cards without pre-disclosing the charge, you may file a complaint with the Attorney General’s Public Inquiry Unit. Complaints are used by the Attorney General's Office to learn about misconduct and to determine whether to investigate a company. However, we cannot give legal advice or provide legal assistance to individuals. If you are interested in pursuing personal restitution, you may wish to consider other options, such as filing a small claims suit (for individual claims up to $10,000) or consulting with a private attorney.