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Debit Card Disputes

How Cardholders Can Dispute Debit Card Charges & How Merchants Can Respond

The Federal Reserve Payments Study, most recently conducted in 2022, revealed a couple of interesting statistics about debit cards.

First, debit card transaction volume increased at a faster annual rate (13.7%) than credit card transaction volume (7.0%) did between 2018 and 2022. And, when we look at raw transaction numbers, we see that 51.8% of all non-cash transactions — 106 billion in total — processed in 2021 were initiated using debit cards.

These figures suggest that debit card transactions are becoming more popular among Americans. But, as the frequency and volume of debit card transactions rise, so will the rate of debit card disputes.

What do cardholders need to know about filing debit card disputes? And, how can merchants mitigate these escalating chargeback risks?

What is a Debit Card Dispute?

Debit Card Dispute

[noun]/de • bit • kärd • di • spyōōt/

A debit card dispute occurs when a cardholder challenges one or more transactions on their debit card statement. The cardholder does this, in theory, because there is some problem with the transaction which they are unable to resolve by working with the merchant directly.

Cardholders typically file debit card disputes because of unauthorized activity, merchant billing errors, or unsatisfactory purchases. To file a debit card dispute, the cardholder contacts the bank that issued their debit card. The bank initiates a chargeback on the cardholder’s behalf.

Once the chargeback or dispute process is initiated, the issuing bank investigates the validity of the transaction by considering evidence and counterevidence submitted by the cardholder and the merchant, respectively. The issuer may also examine merchant information and transaction details, such as geolocation and timestamps.

The debit card dispute process concludes when the dispute is resolved in either the cardholder’s or merchant’s favor. If the cardholder wins the debit card dispute, they receive a credit against the transactions disputed. Meanwhile, the merchant loses out on revenue and merchandise, and is assessed a chargeback fee. If the merchant wins the dispute, the cardholder becomes fully liable for the charge (or charges) disputed.

Is There A Difference Between Credit & Debit Disputes?

Yes. Cardholders spend their own money when using a debit card. But, when transacting with a credit card, they’re spending the bank’s money.

This distinction means that issuing banks may not be as motivated to back cardholders in debit card disputes. After all, it’s not the bank’s money that’s on the line. That’s just one distinction, though; we’ve outlined some additional differences between debit and credit card disputes in the table below:

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When Should Cardholders File Debit Card Disputes?

In general, there are five situations in which a cardholder should dispute a debit card transaction:

• Criminal Fraud: The card was used by an unauthorized third party.
• Authorization Error: The merchant didn’t get the bank’s “ok” for the purchase.
• Processing Error: The merchant made a mistake in submitting the transaction.
• Fulfillment Error: The goods that arrived didn’t match what was described.
• Merchant Abuse: A criminal posed as a legitimate seller to scam victims.

Cardholders are within their rights to dispute any charge that falls into one of these categories. Move quickly, though; time is of the essence.

Learn more about reasons to dispute charges

How to Dispute a Debit Card Charge (Step by Step)

Here are the steps cardholders should follow to try and resolve an issue through the dispute process:

Step 01 | Review the Charge

Buyers should always examine the charge closely. There may be a chance that they simply forgot about the purchase, for example, or are unable to recognize the charge based on the merchant’s billing descriptor. But remember: disliking an object, delivery delays, or not wanting to pay for something a family member ordered are not acceptable reasons for a dispute.

Cardholders should want to avoid filing an invalid debit card dispute; this is a practice called friendly fraud. If this happens, the merchant can fight the claim, meaning the funds could be in limbo for weeks, or even months. Also, filing false debit card disputes can affect the cardholder’s standing with the bank, and may even result in the loss of their account.

Step 02 | Gather Documentation

After reviewing the charge, buyers may determine that they have a legitimate reason to file a dispute. If this is the case, buyers will need to collect evidence to substantiate their claims. This means collecting receipts, order confirmations, emails, texts, call logs, and other transaction and communications records.

Step 03 | Contact the Merchant For a Refund

Banks should require cardholders to try and resolve the issue with the merchant before requesting to dispute a debit card charge. There’s a good reason for this; in many cases, buyers will find that it is easier to request refunds from merchants directly than to go through the dispute process.

In any case, buyers should present merchants with the evidence gathered in the previous step. Some merchants may honor refunds on a “no questions asked” basis, while others will only issue refunds for particular circumstances. Either way, presenting evidence can help buyers strengthen their case for a refund.

Step 04 | Initiate a Dispute With The Bank

If the merchant is unable — or unwilling — to provide a refund, and if the above criteria are met, the cardholder may reach out to their issuing bank to rectify the situation.

The buyer should supply the bank with documentation, including evidence that the buyer first tried to resolve the issue with the merchant. The bank will then conduct a preliminary investigation. If the cardholder’s claim seems valid, they may issue a provisional credit and return the funds to the customer’s bank account. The bank will then recoup the money by initiating a debit card dispute with the merchant.

How Do Debit Card Disputes Affect Merchants?

Now that we’ve got a good idea of how the dispute process works for cardholders, let’s discuss how it affects merchants.

From the seller’s perspective, there isn’t much functional difference between a debit or credit card dispute. Until the claim reaches the chargeback stage, the process to dispute debit card chargebacks is much the same, regardless of what type of card was used. And, the financial and operations impacts are basically the same, too:

Lost Revenue

The disputed amount will be removed from the merchant’s account and held by the card issuer until a decision is made. This loss of funds could be a real challenge, especially for businesses with tight profit margins.

Lost Merchandise

If the dispute was over a physical product, it’s unlikely that the cardholder is going to return it. This means that the merchant will be out both money and merchandise if they lose the dispute.

Labor & Overhead Costs

Time spent investigating and pulling evidence can take away from other important business tasks. This means more overhead costs, not to mention shipping and fulfillment costs from the original transaction are wasted.

Chargeback Fees

Merchants get charged a fee by their acquiring bank for every chargeback they receive. These fees can add up quickly, especially if there are multiple disputes within a short period of time.

Damaged Reputation

Disputes can damage a merchant’s reputation, and can even impact their relationship with their bank. Excessive chargebacks can lead to a higher risk rating and possibly even being blacklisted by card networks.

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How Can Merchants Fight Debit Card Disputes That Morph Into Chargebacks?

If a cardholder cannot, or does not, request a refund from the merchant, they will file a dispute with their issuing bank. Once this happens, the issuing bank will initiate the chargeback process.

A merchant who receives a chargeback can fight the dispute through a process called representment. This is how it works.

Step 01 | Examine the Claim

The bank will supply a reason code to explain the claim made by the cardholder. The merchant should compare the cardholder’s claim to the documentation on file to see if it’s valid. Debit card dispute rules apply to merchants, so it is wise to know when it’s appropriate to fight back… and when not to do so.

Merchants should only fight a debit dispute if they:

• suspect friendly fraud
• have already offered to provide the cardholder with a refund
• can prove the cardholder made a mistake or invalid claim

Every chargeback a merchant receives impacts their chargeback ratio. This can have severe consequences for a business, including high-risk merchant status and even a terminated merchant account.

Step 02 | Gather Evidence

A merchant needs evidence to fight an invalid claim. Acceptable documents can include transaction details, photographs, transcripts of conversations with the cardholder, and tracking/shipping information.

Compelling evidence for chargeback representment is crucial. The bank has already ruled that the merchant’s initial presentment was invalid. So, the seller needs evidence that can undermine the cardholder’s new claim.

Step 03 | Draft a Rebuttal Letter

Compelling evidence isn’t the only necessary documentation here. The merchant must also include a rebuttal letter with the representment package.

The rebuttal letter is meant to give context to the evidence being submitted. It helps explain the situation and makes a concise, yet compelling argument for why the debit chargeback should be reversed.

Step 04 | Submit the Documents

After reviewing all documentation, the final step is for the merchant to submit their claim to the bank. This must be done according to specific requirements (i.e., email, fax, physical mail, etc.), which will be outlined by the merchant’s acquirer.

Once the seller submit their case, the acquirer will review it and forward it along to the issuer. It is then up to the cardholder’s bank to decide if the argument is sound or compelling enough to reverse the debit card chargeback.

The bank could reject the merchant’s claim and return the dispute. This action is called an arbitration chargeback or a “pre-arb,” depending on the card network involved.

Best Practices for Cardholders

Debit card disputes are unpleasant and time-consuming, even from the cardholder’s perspective. Buyers need to collect evidence, contact merchants and banks, and respond to follow-up inquiries. Even then, there’s no guarantee that a cardholder will win their debit card dispute.

So, it follows that the best course of action is to try and avoid having to initiate debit card disputes in the first place.

Tip #1
 | 
Keep Your Debit Card And Checking Account Secure

Cardholders can minimize fraud risks by taking steps to secure their financial information from scammers. For example, cardholders should implement two-factor authentication (2FA) across all of their bank and debit card accounts. Ideally, customers should use an authenticator app as their second authentication factor, rather than SMS; the latter is less secure because it is prone to SIM swapping attacks.

Other best practices include changing passwords frequently, keeping debit card PINs private and confidential, and using virtual cards to make purchases.

Tip #2
 | 
Be Aware of Who’s Authorized to Use Your Card

It’s common for family members to share payment details with each other. But this is not always a good practice. Inevitably, card details that are passed among multiple people will be misused by someone with access. This is a practice known as family fraud.

Cardholders should avoid sharing debit card information with close relatives. If cardholders wish to establish allowances, they can do so by opening joint or custodial checking accounts. This segments the other family members’ purchasing activity from the primary cardholder’s, and lets the primary cardholder keep a close eye on their dependents’ transaction history.

Tip #3
 | 
Read Reviews

Cardholders may be able to avoid a lot of headaches and phone calls with their bank by being a responsible shopper.

Before buying an item, read unbiased reviews from multiple sources.They should ask existing customers about their experiences with the product, and compare multiple merchants to ensure that they’re getting their money’s worth.

Tip #4
 | 
Work It Out With The Merchant First

If a cardholder experiences unauthorized activity on their debit card, or engages in a transaction gone wrong, they have a strong case for a legitimate dispute. Cardholders should still reach out to the merchant first before contacting their bank, though.

There are two reasons for this. First, banks often require cardholders to attempt contact with the merchant for a reason before the cardholder is allowed to file a chargeback case with the bank. Following these rules closely can strengthen a cardholder’s dispute claim with their bank, provided the need arises.

Plus, merchant refunds are faster and more straightforward than disputes that involve banks. Cardholders can receive near-instant refunds from cooperative merchants; by contrast, a debit card dispute with an issuing bank, even if successful, may take between 60 and 90 days to fully resolve.

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Tips & Best Practices for Merchants

238 million chargebacks were filed in 2023. And, the report predicts that as many as 337 million chargebacks will be filed by 2026; a 42% increase in just three years. In the face of these unfavorable statistics, merchants need to take proactive steps to mitigate debit card chargeback risks.

Tip #1
 | 
Use Data-Driven Dispute Tools

Merchants can use a variety of sophisticated tools to prevent debit card chargebacks. For example, chargeback alert services like Verifi CDRN or Ethoca Alerts can track pending chargebacks and alert merchants 24 to 72 hours before they are actually filed. This gives merchants a window of time to preemptively issue a refund and stop the incoming chargeback.

Other services can help merchants prevent combat chargebacks without issuing refunds at all. Network inquiry systems like Customer Clarity and Order Insight provide issuing banks and cardholders with information about transactions. These “nudges” can remind cardholders of legitimate purchases they made in the past and prevent accidental chargebacks arising from (wrongly) suspected fraud.

Tip #2
 | 
Use Fraud Detection Tools to Identify High-Risk Transactions

Some people’s money just isn’t worth taking. That’s the idea behind fraud detection tools; they block suspicious transactions from occurring so that they never have the chance to morph into refunds, disputes, or chargebacks. Some fraud detection providers even offer anti-chargeback guarantees, which reimburse merchants for chargebacks that arise from transactions approved by the fraud detection system. 

These tools need to be deployed in a strategic manner, though. You want to adopt tools that can complement one another and offer redundancies to detect and block as many suspicious transactions as possible.

Tip #3
 | 
Provide Exceptional Customer Service

Customers who trust the merchants they do business with are more likely to work with them when things go wrong. And, the fastest way to build trust is to deliver excellent customer service.

This means responding quickly to customer phone calls and emails, being proactive about rectifying billing and merchandise errors, and adding complimentary services like tracked shipping for peace of mind.

Customer service also extends to refunds and cancellations as well. Merchants who err on the side of issuing generous refunds, for instance, can prevent disgruntled customers from filing chargebacks. In a similar vein, a simple and streamline cancellation process can incentivize customers to cancel through official channels and prevent “force quit” chargebacks from occurring.

Merchants Need a Complete Solution

Cardholders who make purchases with debit cards are more likely to request refunds from merchants before filing a chargeback with their issuing bank. But “likely to” doesn’t mean “will.”

As banks and payment networks make their zero fraud liability guarantees more generous, debit card transactions may soon universally enjoy the same protections as credit card charges. For merchants, this means that debit card chargeback risks should be taken just as seriously as those presented by credit cards.

Given the patchwork of risk mitigation services on the market, how can merchants ensure that they’re adequately protected? Using a complete, fully-outsourced solution — like Chargebacks911®’s end-to-end chargeback management solution — is one option. Contact us today for a no-obligation ROI analysis to see how much you can save by preventing debit card chargebacks.

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