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The Consequences of Falsely Disputing a Credit Card Charge

The Consequences of Falsely Disputing a Credit Card Charge
Jason Steele
Jason SteeleUpdated December 21, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If your credit card was used fraudulently, you have the right to file a dispute (called a chargeback) with your credit card issuer. Some consumers, however, take advantage of this safeguard by filing false chargeback claims. Falsely disputing a credit card charge is a form of fraud in its own right, and comes with some significant consequences.Read on for a closer look at the chargeback process – how it works, how it can protect you from fraud and merchant errors, and what can happen if you file a false chargeback, either on purpose or by mistake.

What Is a Chargeback?

A credit card chargeback is a bank-initiated reversal of a credit card payment. Chargebacks happen when a cardholder contacts their bank to dispute a credit card charge and requests that the payment be “charged back” to their account. You can request a chargeback due to a billing error, an unauthorized charge, or if a merchant fails to deliver a product or service. Generally, it’s a good idea to ask the merchant for a refund first and, if that doesn't work, request a chargeback from your card issuer.With a chargeback, the card issuer will typically refund the money you paid temporarily, and then conduct an investigation to determine who is liable for the transaction. This temporary credit is only yours while the investigation takes place, and you’ll have to wait to find out if the chargeback becomes permanent. Your credit card issuer is required to explain the final decision to you in writing. If you win the dispute, the temporary credit you receive will become permanent. If it’s decided the dispute is not valid, the purchase will be reinstated on your credit card account.

What Is a Credit Card Dispute?

Filing a credit card dispute is the same thing as filing a chargeback –  it’s an action taken by a cardholder to challenge a charge on their credit card statement. You can generally dispute a credit card charge in the following situations:
  • Unauthorized purchases This means someone used your card without your permission. If a fraudster stole your credit card (or card information) and used it to buy products or services, you can dispute those charges. In this case, you’ll want to contact your card issuer right away. They’ll likely cancel your card, issue you a new card with a new card number, and investigate the charges immediately.
  • Bad service and service not rendered Even if you willingly paid for a product, you are eligible to dispute a charge if the product never arrives, arrives broken, or is not as described. 
  • Billing errors If a merchant charges you for an item twice or charges an incorrect amount, you can dispute the erroneous charge. 
Filing a chargeback (or dispute) is typically quick and easy. Often, you can do it by logging into your account online and clicking the “dispute” button and then answering a few questions.Recommended: Tips on Choosing a Credit Card 

What Is Credit Card Dispute Fraud?

Chargeback or credit card dispute fraud occurs if a customer disputes a purchase for a nonvalid reason. For example, disputing a purchase simply because you don’t like the product or had “buyer’s remorse” after the return window closed would be considered chargeback abuse. Chargeback abuse, also known as “friendly fraud,” describes any situation in which a cardholder files a chargeback claim without justification. In some cases, the false chargeback could be due to a genuine misunderstanding – maybe the cardholder didn’t recognize the merchant’s name on their bill or the “unauthorized  purchase” was made by a friend or family member. In other cases, it’s genuine fraud – the buyer is trying to get something for free. In fact, a buyer might actually make a purchase, planning to file a chargeback later.If you dispute a charge in error, you can simply notify your card issuer and explain the situation and there should not be any repercussions. If you knowingly commit fraud, on the other hand, there are typically consequences (more on that below).Recommended: How Do Credit Cards Work? 

What to Do Before Disputing a Credit Card Charge

Before disputing a credit card charge, you’ll want to make sure that the transaction is indeed one that you don’t recognize. That means checking to make sure that the merchant isn’t using a different name or, if you have another authorized user on your account, making sure that person didn’t make the charge. If you believe the charge is an error or instance of fraud, your best next step is to contact the merchant and see if they are willing to correct the problem. If the merchant is unreachable or refuses to make things right, you’ll then want to contact your card issuer and initiate the chargeback process.

Consumer Consequences for Friendly Fraud: Filing False Credit Card Disputes

Cardholders can face consequences for filing false chargebacks. In fact, friendly fraud is considered to be a form of wire fraud, which means that, technically, you could go to jail for falsely disputing credit card charges. However, that doesn't commonly happen. Here’s what may more likely occur.

Blacklisting

If you file a false dispute, you may be added to a chargeback blacklist by the merchant. This prohibits you from making future purchases with the merchant. If you regularly shop with that company, this could be an issue. 

Reduced Banking Privileges

When a bank customer files a chargeback claim, the bank assumes they are being truthful and devotes time and resources to dispute the charge and recover the funds on their behalf. If the bank discovers that a customer is filing false claims, they may then view them as a liability rather than a victim, and potentially close that customer’s account.

Damage to Credit Score

If you have a credit card account closed due to false chargeback claims, the closure will likely show up on your credit report. This could reduce your available credit and, in turn, increase your credit utilization ratio (how much of your existing credit you are currently using). A higher credit utilization ratio could negatively impact your score.Recommended: What Does A Derogatory Mark Mean on Your Credit Report 

Fair Credit Billing Act Rights

The Fair Credit Billing Act (FCBA) of 1974 gives you the right to dispute a credit card charge you believe is a billing error. This includes unauthorized charges, transaction amounts or dates that don’t match up with your receipts, and charges for items that you purchased but didn’t receive or weren’t supplied as promised.If you believe there’s an error on your statement, the FCBA states that you need to notify your card issuer in writing within 60 days of when the billing statement was sent. However, you may first want to reach out to the merchant to see if you can resolve the issue on your own (this can often lead to a quicker resolution than launching a dispute process). If you are unable to resolve the problem, you can reach out to your card issuer by phone, online, or mail to dispute the charge.

The Takeaway

If your credit card was used fraudulently, you are entitled to file a chargeback with your credit card issuer. However, this doesn’t mean that you can play the system and defraud merchants. Cardholders who falsely dispute a credit card charge can face significant consequences.If you don’t currently have a credit card (perhaps due to limited or poor credit), or you’re in the market for a new one, Lantern by SoFi can help. With our online credit card marketplace, it’s easy to compare multiple credit card offers (including credit-building cards) matched to your needs and qualifications with just one application.

Frequently Asked Questions

What happens if you lie on a credit dispute?
Can I dispute a credit card charge that I willingly paid for?
Can I get in trouble for disputing a charge?
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About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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