Consumers have a legal right to dispute credit card charges that they believe are either in error or the result of theft or fraud. Banks, retailers, and other vendors need to be aware of the payment dispute process in order to identify ways to streamline the process, save costs, and maintain their customers’ goodwill. They should also understand the benefits and risks of using third parties to investigate disputes, and how best to deal with dispute and chargeback fraud. Finally, banks and merchants need to know how the new debt collection rule from the Consumer Financial Protection Bureau (CFPB), known as Regulation F or “Reg F,” will affect them when they investigate and process payment disputes.

What is a payment or card dispute?

A credit card-related payment dispute occurs when a customer challenges the validity of a payment made to a merchant or bank. The customer might allege:

  • Fraud: The charge was perpetrated through identity theft or another illegal scheme.
  • Mistake: The vendor charged the wrong amount or failed to process a refund.
  • Unknown transaction: The customer does not recognize a charge on their credit card or bank statement.
  • Inadequate or missing goods: The customer claims that they never received the goods for which they were charged, or that the goods they received were either not the goods they ordered, or not of the quality they expected.

A consumer asserting a payment dispute against a bank might claim that the company did not process their credit card payment in a timely manner, meaning that they dispute late payment fees and interest charges. A consumer could direct a payment dispute to their bank if they are disputing late payments on closed accounts. A payment dispute itself could be fraudulent.

How often do disputes happen?

Payment disputes are relatively rare. Even in small numbers, though, they can have a serious financial impact and damage relationships between banks and customers.

A report by McKinsey & Company estimates that payment disputes occur in less than one percent of all transactions. It further states that the 2020 fiscal year saw over $3.57 trillion in global payments through banks. Payment disputes, therefore, affected approximately $35.7 billion in payments during that time.

Fraudulent vs incorrect transactions

The Fair Credit Billing Act (FCBA) of 1974 gives consumers the right to dispute “billing errors,” including:

  • Unauthorized or fraudulent charges;
  • Charges for the wrong amount;
  • Charges for products or services that a consumer did not receive or did not accept;
  • Payments posted on the wrong date or to the wrong account;
  • Late fees or other penalties incurred as a result of failure to send a bill to the correct address or in a timely manner; and
  • Other errors by the creditor.

The FCBA guarantees the right to dispute any charge of $50 or more and limits the consumer’s liability to $50 for fraudulent charges. Most banks offer to cover the entire charge as long as consumers report the suspected fraud in a timely manner.

The payment dispute process

Every major bank and credit card network has established procedures for investigating and processing payment disputes. While each entity is responsible for handling its own disputes, the processes are all quite similar to one another. This means that while some details might differ, one can make general observations about the payment dispute process.

Process for consumers

A consumer can initiate a payment dispute by notifying a bank that they dispute one or more particular payments.

Filing a dispute

The FCBA sets general guidelines for payment dispute procedures. While consumers are encouraged to attempt to resolve the dispute with the merchant first, the FCBA mainly addresses disputes between consumers and banks.

Banks must provide an address where consumers can send notifications of disputes. For erroneous charges, the consumer must send the dispute to that address within sixty days of the date they received the bill with the allegedly fraudulent or erroneous charge. No set time limit applies for disputes of fraudulent charges, although banks may encourage customers to report disputes quickly.

The bank’s first job is to determine whether the payment dispute appears to be valid, and therefore requires further investigation. Creditors provide customers with a list of acceptable grounds for a payment dispute, including suspected fraud or administrative error. A bank may dismiss a payment dispute that does not cite a valid reason.

If the bank determines that the consumer’s allegations merit investigation, it will open a formal dispute. If, after investigating the consumer’s claims, they find that the charge was fraudulent or in error, they will initiate a chargeback.

Chargebacks from merchants

A chargeback returns funds to the consumer’s credit card or bank account and seeks to recover those funds from the merchant’s bank. A merchant receiving a chargeback has two options. If they acknowledge the chargeback, the consumer gets their money back. If they deny the chargeback, they can present the charge again along with evidence that discredits or disproves the consumer’s dispute.

The merchant’s bank must decide whether to continue with the chargeback or side with the merchant. If it sides with the merchant, the consumer may have no further recourse besides the merchant’s procedures for a refund or cancellation of an order. In either case, the merchant may have to pay a fee to its bank for the chargeback.

A merchant or its bank can also initiate a chargeback, such as if they realize that the merchant ran a credit card for an incorrect amount. The merchant notifies their bank, which then contacts the customer’s bank to request that the funds be returned to the customer’s credit or debit card.

Most banks issue a temporary credit to the consumer, pending the outcome of their investigation. If they ultimately determine that the consumer is responsible for the charge, the bank will reverse the credit.

Documentation needed

A consumer must provide information about themselves and the payment in question in order to initiate a payment dispute:

  • Name;
  • Address and telephone number;
  • Account number; and
  • A description of the alleged error or fraud, including the date of the transaction, the amount, and the name of the merchant.

A consumer can include all of this information in a letter to their bank, such as the sample letter provided by the Federal Trade Commission (FTC) for payment disputes.

A bank may request additional documentation during its investigation. This could include the receipt or other documents that might show a different price than the amount charged. Documents showing that the consumer could not have made the purchase could support a claim of fraud, such as something showing that the consumer was in a different city at the time the charge occurred.


Consumers should try to resolve payment disputes with merchants before getting the bank involved. A merchant might be able to address a consumer’s concerns faster than a bank.

A bank’s payment dispute process usually takes longer, since it requires the involvement of several entities, e.g. the consumer’s bank, the merchant, and the merchant’s bank. Some banks will do a chargeback and issue a refund to a consumer fairly quickly, before resolving the matter with the merchant or the merchant’s bank. Still, it could take several weeks, or even longer than a month, for a payment dispute to work its way through each banks’ system.

Process for banks

Upon receiving a payment dispute from a customer, a bank’s first job is to determine whether to proceed with opening the formal dispute process. A dispute must present a valid basis for granting the customer a chargeback. Legitimate bases for a payment dispute tend to involve:

  • Fraud;
  • Inaccurate charges;
  • Duplicate charges; or
  • Charges for goods or services that were never delivered or were substantially below their expected quality because of damage or defects.


How do banks investigate disputes on debit cards or credit cards? This depends on the circumstances of the payment in question. A bank might have one way to investigate disputes that claim fraud, and another for disputes that involve possible mistakes or questionable goods. The main difference is in the extent to which the merchant is involved in the investigation.

In fraud investigations, banks should request information or documentation from the consumer that corroborates their claims. For example, a consumer disputing a charge at a retail store in Chicago on the basis of fraud could produce evidence showing that they were in Miami on that date, and that they made purchases at local businesses during that time.

Some banks, upon receiving convincing evidence of fraud from a consumer, presume that the merchant is liable and move quickly to initiate a chargeback. This can benefit the relationship between the consumer and the bank, although could make a chargeback dispute from the merchant more likely.

When a payment dispute alleges an administrative error or claims that the goods or services they paid for were damaged, defective, or never received, most banks follow a process that involves the merchant in the investigation. These kinds of disputes tend to be more subjective than claims based on fraud, so it is often a good idea to ask the merchant to provide their account of what happened. A bank can obtain information about the transaction from the merchant by sending a retrieval request through the merchant’s bank.

Dispute documentation

Banks should collect as much documentation as they can when investigating payment disputes. This will help them make the most informed decision possible. Should either the consumer or the merchant dispute the bank’s conclusion, extensive documentation can help the bank justify its decision.

Documentation received from the consumer might include:

  • The letter describing the payment dispute;
  • The receipt from the transaction at issue;
  • Documents that support claims of fraud, such as by showing that the consumer was in a different city at the time of the transaction;
  • Documents that support claims of error, such as advertisements showing that the merchant charges a lower price for the product or service; or
  • Documents that support a challenge to the quality of the goods, including photographs that indicate the condition of a product when the consumer received it.

Documentation received by the merchant might include:

  • The receipt from the transaction at issue that includes the consumer’s signature;
  • Documents that challenge any other part of the consumer’s allegations, including evidence connecting the consumer to the transaction, supporting the amount charged to the consumer, or challenging claims of substandard-quality goods.

Dispute resolution

Once a bank has received all of the requested information and documentation from the consumer and the merchant, it can compare everything provided by each party. The bank can move ahead with a chargeback or deny the dispute, depending on what it concludes from its review of the evidence.

Denial of a payment dispute does not necessarily mean that the bank is accusing the consumer of filing a false claim. A consumer might file a payment dispute in good faith, not realizing that a family member borrowed their card to make a purchase. They might have simply forgotten that they made the purchase. Scenarios like these are sometimes known as “friendly fraud,” since the consumers filing the disputes are not acting with knowledge that the disputes are not valid.

Dispute/fraud management platforms and efficiency

A variety of case-management systems are available to help banks handle payment disputes. These platforms purport to streamline workflows, while also enabling banks to flag common signs of fraudulent payment disputes. They range from software-as-a-service (SaaS) platforms managed by the banks themselves to platforms that outsource the entire payment dispute process to a third party, with many options that provide a hybrid of both.

The extent to which dispute management software can improve efficiency depends on how integrated they are with a bank’s relevant systems. Payment dispute investigations often require information from multiple separate systems within a bank. The report by McKinsey & Company cited earlier describes “over-reliance on the case-management system” as an obstacle many banks face. Full integration is crucial to realizing all the benefits of a dispute management system.

Mandated timelines and timeframes

Banks have some discretion to set timelines for the payment dispute process. For transactions covered by the FCBA, consumers must give notice of a dispute within sixty days of the date they received the bill with the allegedly fraudulent or inaccurate payment. The bank must complete its investigation within two billing cycles or ninety days, whichever is shorter.

Partnering with a third-party agency to handle disputes

Banks can use third-party agencies to handle the day-to-day aspects of payment disputes. This can reduce the administrative burden on the bank, but it can also bring certain drawbacks.

How third parties fit into the payment dispute world

Third-party contractors are available to assist both banks and merchants with payment disputes. Banks may use third-party contractors to handle some or all of the aspects of the payment dispute process, including:

  • Collecting and analyzing information and evidence;
  • Conducting investigations; and
  • Attempting to resolve disputes.

Merchants may use third-party agencies to assist them in payment disputes, such as by facilitating communication with banks investigating payment disputes.

How third parties investigate disputes

Much of the evidence that is relevant to a payment fraud investigation is already in the bank’s possession. One of the main benefits for a bank to using a third-party agency to investigate disputes is that this frees up the bank’s resources for other purposes. In order for the third-party agency to do its job, however, the bank must give it access to a rather significant amount of its systems and records.

Investigating payment disputes requires an ever-increasing amount of technological savvy. This could be an area where third parties who specialize in investigating online and electronic transactions could benefit banks. An agency with expertise in finding IP addresses, geolocation data, and other information about a transaction could be able to conduct an investigation far faster than the bank.

Minimizing credit card dispute fraud

While the fair and efficient resolution of payment disputes can help banks develop and maintain good relationships with their customers, they should remain cautious about the potential for fraud. “Friendly fraud,” as discussed above, can cause problems for banks, but fraud perpetrated with actual intent can be disastrous.

What is credit card dispute fraud?

Credit card dispute fraud occurs when a consumer makes a payment dispute that is based on false pretenses. The consumer may or may not know that they are making a fraudulent dispute. The impact on the bank and the merchant could be the same in either case. Examples may include:

  • A customer disputes a charge that they actually made, but do not remember;
  • They dispute a valid charge made by a family member without their knowledge;
  • They misstate the nature of the problem so that it fits one of the bank’s grounds for legitimate payment disputes; or
  • They dispute a charge with full knowledge of its validity, intending to keep what they bought and recover the money they paid.

The first two examples are often known as “friendly fraud,” since the consumer is not acting with malicious intent. The third example is something of a gray area, while the fourth is unambiguously fraudulent.

Consequences of credit card dispute fraud

Consumers may face legal consequences for credit or debit card dispute fraud, but they are rarely very serious. Repeated abuse of payment dispute processes by a customer may lead a bank to close their accounts. Merchants might ban someone from their locations.

Preventing credit card dispute fraud

Prevention can be difficult, since not all dispute fraud occurs with fraudulent intent. Even some intentional fraudsters start out as honest customers who follow the rules.

Merchants can help dissuade fraudsters by disputing chargebacks by submitting the transaction again. This process is known as “representment.”

Regulation F in Dispute claims

Part 1006 of Title 12 of the Code of Federal Regulations, also known as Regulation F or Reg F, establishes rules and restrictions for debt collectors under the Fair Debt Collections Practices Act (FDCPA). The CFPB promulgated this rule in November 2020, but it does not take effect until November 30, 20201.

The FDCPA regulates how third-party debt collectors may interact with consumers in the course of their business. The statute does not apply to individuals or businesses that are attempting to collect their own debt, unless they do so using a different name so that a debtor might reasonably think that they are a third-party debt collector.

Congress enacted the FDCPA in 1977. The world is a very different place now in many ways. The purpose of Reg F is to clarify the law for the 21st century. Since the rule will not take effect until the end of November, it is difficult to say what the relationship between Regulation F and payment disputes will be.

How Reg F impacts creditors when investigating a dispute claim

Reg F clarified the provisions of the FDCPA that restrict when and how often debt collectors may contact debtors. In the context of payment disputes, a consumer could become a debtor if their dispute is found to be frivolous or fraudulent.

As long a bank makes it clear to the consumer that it is conducting an investigation into the payment dispute itself, it is not officially covered by Reg F. That said, consumers have grown accustomed to the restrictions imposed by the FDCPA and enforced by Reg F. It would be in creditors’ interest to use those restrictions as guidelines when contacting consumers during investigations, in order to maintain general consumer goodwill.

If a bank conducts investigations through a division or subsidiary that goes by a different name, it would be subject to Reg F. If it uses a third-party contractor, the contractor could be considered a debt collector under the FDCPA, and the bank would be responsible for ensuring that it complies with the law.

How Reg F protects consumers filing a dispute claim

As mentioned above, the FDCPA sets limits on debt collectors with regard to how, when, and how often they may contact debtors. Consumers asserting payment disputes may be expected to submit evidence and documentation, and to participate in the investigation and dispute resolution process. Reg F protects them from excessive or unreasonable contact from anyone acting in the capacity of a debt collector.

Implications for banks that do not work within the boundaries of Reg F

Consumers are entitled to recover actual damages in civil lawsuits for violations of the FDCPA, along with additional damages up to $1,000 per violation. For class actions, a debt collector could be liable for $500,000 or one percent of its net worth, whichever is lesser.

Banks that do not follow Reg F risk, at best, diminished relationships with their customers and consumers in general. At worst, they risk liability for damages under the FDCPA.


Payment disputes present increasingly complicated challenges for banks, credit card networks, and merchants. With Reg F set to take effect in November 2021, knowledge of the legal and practical requirements for payment disputes is more important than ever. Compliance, fraud, and dispute management platforms can help the banking industry streamline dispute resolutions while remaining compliant with Reg F, the FDCPA, and the FCBA.

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