What Is a Disputed Transaction and How Does It Work?

A disputed transaction refers to a charge on a credit or debit card statement that a cardholder questions or believes is incorrect. This financial challenge allows consumers to address discrepancies with payments made through their accounts. Understanding how to navigate this process is important for consumers to protect their financial interests and resolve billing issues that may arise.

Defining Disputed Transactions and Their Causes

A disputed transaction is a formal process initiated by a cardholder to challenge a charge on their account statement, lodged with the issuing financial institution. Reasons for a dispute vary, covering unauthorized activity or problems with goods or services received.

One common reason for a dispute involves unauthorized or fraudulent charges. This occurs when a cardholder notices transactions they did not make or approve, often due to a stolen card, identity theft, or compromised account information. Such instances involve the illegal use of card details without the cardholder’s knowledge or consent.

Other frequent causes for disputes stem from billing errors or issues with the merchant. Duplicate charges, where the same transaction appears multiple times on a statement, are a common example. Incorrect amounts charged, either more or less than agreed upon, also prompt disputes.

Disputes also arise when goods or services are not received after payment, or when items received are not as described or are defective. Subscription issues, such as continued billing after a cancellation, constitute valid grounds for a dispute.

Preparing to Dispute a Transaction

Before formally initiating a dispute with a bank or card issuer, a consumer should undertake several preparatory steps to strengthen their claim. Gathering specific transaction information is a primary step. This includes details such as the exact date and amount of the transaction, the merchant’s name, and any available transaction identification or reference numbers.

Documenting the issue with comprehensive evidence is also important. Consumers should collect proof of purchase, such as receipts, order confirmations, or invoices. Any evidence directly related to the problem should also be secured, like photographs of damaged goods, screenshots of incorrect product descriptions, or records of communication with the merchant.

Attempting to resolve the issue directly with the merchant first is often advised and can be the quickest way to resolve a problem. Consumers should document these attempts thoroughly, noting the dates and times of contact, the names of representatives spoken to, the outcomes of discussions, and retaining copies of any email correspondence. If direct resolution fails, this documentation demonstrates a good faith effort to resolve the matter before involving the card issuer.

Consumers should be aware of specific time limits for disputing transactions. For credit cards, the Fair Credit Billing Act (FCBA) provides 60 days from the date the first statement containing the error was mailed. Card networks and issuers may offer longer periods, ranging from 90 to 120 days from the transaction date or delivery date. Debit card disputes are governed by Regulation E, which sets specific notification requirements within 60 days of the statement showing the error.

The Dispute Initiation Process

Once a consumer has gathered all necessary information and attempted direct resolution with the merchant, the next step involves formally initiating the dispute with their financial institution. This process begins by contacting the card issuer. Many banks offer online portals or mobile apps for digital submission. Consumers can also call the customer service number on their card or statement, or submit a dispute by mail.

During this initial contact, the consumer should be prepared to provide all the transaction details and supporting documentation they have gathered. This includes the date and amount of the charge, the merchant’s name, and a clear explanation of why the transaction is being disputed. The bank representative will ask questions to understand the specifics of the claim. Be precise and provide all relevant evidence to support the dispute.

After the dispute is initiated, the cardholder receives a dispute reference number, which can be used to track the progress of the claim. For credit card disputes, the cardholder may receive a provisional credit for the disputed amount while the investigation is underway. This provisional credit means the cardholder is not required to pay the disputed amount or related finance charges during the investigation. However, the disputed amount may still count against their credit limit, and payments on other undisputed charges on the account must continue.

The Dispute Investigation and Resolution

After a dispute has been formally initiated, the financial institution begins an investigation into the claim. The bank’s role involves assessing the cardholder’s claim and reaches out to the merchant for their perspective and supporting evidence. The bank may request documentation from both the cardholder and the merchant to determine the validity of the dispute.

The merchant is given an opportunity to respond to the dispute and provide their own evidence to refute the cardholder’s claim. This evidence might include proof of delivery, signed receipts, records of services rendered, or terms of service that the cardholder agreed to. If the merchant provides sufficient evidence, the dispute may be denied.

The investigation process has specific timelines for resolution. For credit card disputes under the Fair Credit Billing Act, the card issuer must acknowledge the dispute within 30 days of receiving it and resolve it within two complete billing cycles, or no more than 90 days. Debit card disputes follow similar timeframes, ranging from 45 to 90 days for resolution, depending on the nature of the error.

There are several possible outcomes once the investigation concludes. A successful chargeback means the bank finds in favor of the cardholder, and the charge is permanently reversed, with the funds returned to the account. If the dispute is denied, the bank sides with the merchant, and the charge remains on the account, or any provisional credit issued is reversed. In some instances, a partial credit or compromise may be issued, resulting in a reduced refund. If a dispute is denied, the bank’s decision is generally final.