Chargeback: the card protection banks don't tell you about

If you've been denied a refund - whether for a holiday or at home - a little-known scheme could help you get your money back.

Since the coronavirus pandemic began we've seen a huge increase using our chargeback and Section 75 claims tool - up 900% in March and April, compared to March and January.

With many businesses refusing to offer refunds, in direct contradiction of the law, their customers have turned to banks and card providers.

Time limits and conditions apply to each and every chargeback claim, however, with ordinary people unaware that these rules exist and reliant on their card provider to fight their corner.

Here, we unpick the complexities and explain what to do if you think your card provider has made a mistake.

What is chargeback?

Chargeback is a card refund initiated by your bank when you've reached an impasse with a business (referred to as the 'merchant').

It can be used for credit, debit and prepaid card payments of all sizes.

Unlike Section 75, chargeback isn't a legal protection, although our Twitter poll suggests that only half of people are aware of this.

Chargeback can only be requested under specific circumstances known as 'reason codes', as determined by guidelines set by American Express, Mastercard or Visa. For example, Visa's dispute code 13.1 relates to goods or services that were not received (the Mastercard equivalent is code 4853).

As these codes aren't advertised to the public, you'll need your bank to ask the right questions

Chargeback deadlines

Chargeback is subject to strict deadlines.

In most cases, such as defective goods, your bank will need to start the process within 120 days of the transaction date.

Or, the claim can be raised 120 days from the date you were due to receive the goods or services (such as a flight) - up to 540 days from the transaction days.

Around half of the Twitter users we polled were unaware of any deadlines.

Deadlines also apply during the chargeback process, if your bank needs you to provide evidence.

Crucially the merchant will have an opportunity to defend the chargeback and provide its own evidence, as you can see from the infographic explaining the chargeback process below.

Chargeback refunds if a company ceases trading

If the retailer has gone bust before delivering the goods or services you paid for, the 120 day window starts from either the official insolvency date, or the date the goods were expected. Ask your bank which date applies.

If you have accepted vouchers (eg for a future flight) and the merchant subsequently ceases trading before you can use them, your chargeback claim window is:

• Visa 120 days from the original date of the service.
• Mastercard 120 days from the voucher or merchant-branded gift card's expiration date, or if undated, then 540 calendar days from the processing date of the original transaction.

If you have an annual subscription, eg to a gym, and the merchant stops trading, you must request a chargeback within 120 days of services ceasing, up to a maximum 540 days of the original transaction.

Refunds for unused gift cards are generally 120 days from the expiration date printed on the card.

If there is no expiration date printed on the card, Visa's deadline is 540 calendar days from the date of the original transaction, whereas Mastercard gives you 120 days from when retailer was declared insolvent.

Amex has not responded to our questions, although it does operate a chargeback scheme.

How *not* to make a chargeback claim

Don't go straight to your bank Unless it has gone bust, you must always attempt to resolve the dispute with the seller in the first instance (unlike Section 75).

Don't ignore requests for evidence If you miss these deadlines, the money will be returned back to the merchant. So ask your bank to make these dates clear to you at the outset.

Don't celebrate too quickly Your bank may temporarily credit your account with the disputed funds while it investigates, but this money could be removed if your claim is unsuccessful.

What if my dispute is unsuccessful?

If a decision doesn't go your way, you can appeal to Mastercard or Visa for a final decision if your bank agrees there is further evidence to continue the claim.

You can also make a formal complaint if you think your bank has failed to handle your case appropriately, and escalate this to the Financial Ombudsman Service (FOS) if you're still not happy with its response.

Published FOS complaints show that banks can make mistakes. We've seen cases where banks were ordered to compensate customers because they: gave the wrong information about timescales, ignored additional evidence supplied by cardholders; and failed to recognise that they can use chargeback even where a business is no longer trading.

• Find out more: how to take a complaint to the Financial Ombudsman Service

Chargeback and fraud

Although banks can use chargeback to recover money lost to card fraud, you are entitled to an immediate refund in these circumstances under the Payment Services Regulations.

That applies to payments you didn't authorise (the most you can be liable for is the first £35 of losses arising from the use of a lost or stolen card), as long as you report it promptly and (in the case of debit card fraud) haven't been 'grossly negligent' with your Pin or security details.

There's a high threshold for this negligence test and it only applies to debit card fraud, not fraudulent credit card payments or fraudulent debit card payments that take you into your overdraft.

• Find out more:How to complain about unauthorised transactions on your card

First featured in June's Which? Money magazine

Also in this issue: we meet the fraud fighters, an explanation to insurance add-ons and our analysis of the best and worst investment platforms.

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