Thread: Refund vs chargeback penalty?

A service provider that I contracted made a charge to my credit card by mistake and I asked for a refund. They say that they're unable to issue a refund directly to the credit card because this kind of operation if very frowned upon by their account processor and could result in their business account being terminated and black listed.
They are offering a refund by check but I'm currently out of the country and need the credit back to my card.
My question is, is it true that merchants get penalized for issuing credits or refunds back to their customers credit cards? I thought this was only the case when the customer initiated a chargeback which is a more serious dispute as it implies a possible illegal transaction.

Thanks.

Just the opposite is true. Merchants are not allowed to issue cash refunds for transactions made by credit card; they could face termination if they did so. If you made a credit card transaction, you have a right to get a credit card refund assuming that the refund is valid. I would contact the merchant and tell them that if a refund isn’t issued back to the card, you will request a chargeback. Please note however this only applies if the refund is valid, i.e. they don’t have a policy against refunds or the service/merchandise was returned inline with their policies. In either case, try to communicate with the merchant first, most merchants will work with you versus receiving a refund which is much worse than any refund.

Originally Posted by chargebacks

Just the opposite is true. Merchants are not allowed to issue cash refunds for transactions made by credit card; they could face termination if they did so. If you made a credit card transaction, you have a right to get a credit card refund assuming that the refund is valid. I would contact the merchant and tell them that if a refund isn’t issued back to the card, you will request a chargeback. Please note however this only applies if the refund is valid, i.e. they don’t have a policy against refunds or the service/merchandise was returned inline with their policies. In either case, try to communicate with the merchant first, most merchants will work with you versus receiving a refund which is much worse than any refund.

Thank you, I will contact them again about this issue. I still wonder if a merchant can get its account terminated or if they will be forced to pay penalty fees if they issue too many refunds. The person I talked to was very emphatic on the impossibility of reversing the credit card transaction because if they did, it would seriously affect their reputation. Is there any specific law or policy that I could refer to so they notice that I'm informed about my rights and press them to accept the credit card refund without resorting to a chargeback? Do all account processors follow the same guidelines regarding refund penalties?

Originally Posted by Strife

I still wonder if a merchant can get its account terminated or if they will be forced to pay penalty fees if they issue too many refunds.

There are never "too many" refunds as a refund is a valid and legitimate aspect of the transaction process. So long as the refund is valid and legitimate, a merchant can not be penalized for it. The only thing that even comes close to a penalty that I can think of is if the merchant issues a refund and they don't have enough $$$ in their bank account to cover that refund, in that case they would possibly face nsf fees from their bank and problems with their merchant service provider but that has nothing to do with you.

Originally Posted by Strife

The person I talked to was very emphatic on the impossibility of reversing the credit card transaction because if they did, it would seriously affect their reputation.

There are two possibilities; the first and most likely would be that they were misinformed. Sadly there are so many untrained and uneducated people selling merchant accounts and giving out incorrect information that it's mind boggling. There is no real requirement when it comes to training people in this space so you never know who is giving you what information. I see this all the time.

The second possibility here is that the merchant simply didn't have the money or willingness to give a refund. Sometimes merchants will give consumers misinformation to avoid giving a refund in the hopes that consumers don't know any better and sadly, it often works.

Originally Posted by Strife

Is there any specific law or policy that I could refer to so they notice that I'm informed about my rights and press them to accept the credit card refund without resorting to a chargeback?

You will have to ask a lawyer that but I wouldn't get too much into the "legal" aspect because the only end result of that would be to sue and let's face it, that usually never goes anywhere. Fact is if you are justified in your refund request, I can't imagine a legal situation that wouldn't allow for it.

Originally Posted by Strife

Do all account processors follow the same guidelines regarding refund penalties?

Rules and guidelines vary from bank to bank but ultimately everyone in the industry does have to follow the same basic industry rules and a baseline to that would be in the issuance of refunds. For the most part as long as your refund request is valid and falls inline with their refund policy, they would otherwise be obligated to issue it and I can't foresee a reason that they would be penalized beyond simply not having the money which does happen from time to time.

Yes, now that you mention it, the person I talked to might be misinformed as in one instance he actually used the word "chargeback" without me even mentioning it. Since they are trained to avoid that situation like the plague they might not be aware of the possibility of just issuing a refund.
Again, thanks for the information, now I'm more confident on resolving this issue.

This definitely sounds fishy to me. I wonder if they use the excuse of trying to issue refunds by check in order to hope that you pass the deadline for chargebacks.

As a merchant, there is no reason to do this. Even if you issue a refund by check, a chargeback can still be done. It's risky. We only issue check refunds if we pass the 6 month deadline and there's some exceptional circumstance where we still want to refund someone.

so, if you refund vs. take the chargeback, how do you report this negative debt?

or don't you?

ex. chargeback in wk.1, credit issued wk.2, funds back in wk.3

any help would be greatly appreciated.

I thought I would add my two cents. I have managed call centers for years, and I have a great deal of experience on the merchant side.

A company I formerly worked for always pushed for giving a refund in the form of a check, cc payments included.

It was explained to me by the owner that there were fees involved with refunding through the merchant account. That is why they push for a check refund.

I did not know it was illegal, but knowing the company I formerly worked for.....it is definitely possible

it was true with my case too when i had to ask the contractor for a refund when he made a charge to my credit card by mistake. i was helped by them.

My two cents ...

1. Merchants have the obligation to issue any and all refunds to the original form (i.e. credit card) of purchase. This is stipulated in their merchant account contract as it is also stipulated in the contract merchant account providers have with the card associations (i.e. Visa, et. al.).

2. As another poster already pointed out, on big disadvantage of accepting any other sort of refund is there is the possibility the merchant is trying to delay things (i.e. check inthemail, check bounces) until you are outside of the deadline for filing a chargeback.