What Is a Fraudulent Charge and What Should You Do?

A fraudulent charge can impact finances. Understanding fraudulent charges and appropriate steps safeguards finances. This guide clarifies identification and resolution, empowering decisive action.

Defining a Fraudulent Charge

A fraudulent charge represents an unauthorized transaction made without consent. This differs from billing errors or disputes over goods or services. These require resolution but not unauthorized use.

One common scenario involves stolen card numbers, through physical theft or data breaches. Identity theft can also lead to fraudulent charges when criminals gain personal information to open or misuse accounts.

Phishing scams trick individuals into revealing sensitive financial details, preceding unauthorized transactions. Scams involve fake emails or websites to steal login credentials or card numbers. Unauthorized use by someone with legitimate account access (e.g., family member, former associate) can also be fraudulent if not approved by the primary account holder.

Recognizing Unauthorized Activity

Regularly reviewing financial statements defends against fraud. Scrutinize bank and credit card statements upon receipt or online. This allows timely detection.

Several red flags can indicate a fraudulent charge:
Unfamiliar merchant names or vague transaction descriptions.
Incorrect amounts (e.g., $100 for a $10 purchase) or duplicate charges.
Charges from unexpected locations (e.g., foreign countries) or small amounts like $1.00.
Small “test transactions” used to verify card validity before larger purchases.

Never ignore unexpected account alerts or notifications from a financial institution (e.g., large purchase emails or unusual location transactions). These alerts flag suspicious activity for immediate review. Prompt recognition enables swift action to address unauthorized charges.

Preparing to Dispute a Charge

Before initiating a formal dispute, gathering relevant information and documentation is a preparatory step. Thorough documentation strengthens a consumer’s case and streamlines dispute resolution. Record every detail of the suspicious charge.

Collect the exact date, amount, merchant name, and any associated transaction IDs or reference numbers. Check recent activity, email confirmations, or physical receipts to determine if the charge is unauthorized or a forgotten legitimate purchase. Note the exact date the fraudulent charge first appeared on a statement; this marks the beginning of the reporting timeframe.

Understanding reporting timeframes is important. For debit cards, the Electronic Fund Transfer Act (EFTA) provides varying liability limits based on how quickly the unauthorized transaction is reported, with stricter deadlines. For credit cards, the Fair Credit Billing Act (FCBA) offers more lenient, but time-sensitive, protections.

While specific timeframes vary by institution, reporting within 60 days of the statement date is advised for credit card disputes, and sooner for debit cards to limit liability. Maintaining records of merchant communication can be beneficial; for clear fraud, direct financial institution contact is the immediate next step.

The Charge Dispute Process

Once information is gathered, initiate the dispute process with the financial institution. Consumers can report fraud to their bank or issuer via several methods. These include calling the customer service number on the card, using an online dispute portal, or sending a written letter.

Provide prepared details when reporting the fraudulent charge. Include transaction date, amount, merchant name, and any reference numbers. The financial institution will investigate the disputed transaction. During this period, especially for credit cards, a provisional credit may be applied, temporarily restoring funds. This provisional credit allows access to funds, though it can be reversed if the investigation concludes the charge was legitimate.

Resolution timelines vary, but many disputes resolve within 30 to 90 days; complex cases take longer. Final resolution results in either a chargeback (disputed funds permanently credited back) or a denial. After a fraud incident, monitor credit reports for further unauthorized activity or potential identity theft.

Consumer Protections for Unauthorized Charges

Legal and industry protections limit consumer liability for unauthorized charges. These frameworks provide a safety net against fraud. The Fair Credit Billing Act (FCBA) is a federal law protecting consumers from unfair billing practices on credit card accounts. Under the FCBA, maximum liability for unauthorized credit card use is $50 if loss or theft is reported. This protection applies to open-end credit accounts (e.g., credit cards), but not debit card transactions.

The Electronic Fund Transfer Act (EFTA) provides similar, more stringent protections for debit cards and other electronic fund transfers, with liability for unauthorized debit card transactions varying based on reporting timeframe. If reported within two business days of learning of loss or theft, liability is capped at $50. If reported after two business days but within 60 days of the statement showing the unauthorized transfer, liability can increase to $500. Failure to report within 60 days of the statement date showing the first unauthorized transfer can result in unlimited liability for subsequent unauthorized transactions.

Major credit card networks (e.g., Visa, Mastercard, American Express, Discover) offer “zero liability” policies. These policies waive all consumer liability for fraudulent charges, providing broader protection than federal law, assuming the cardholder was not negligent with their card or PIN and promptly reported the unauthorized activity. These protections highlight the importance of immediate reporting of any unauthorized activity.