How Do Banks Investigate Disputes? (2023)

How Do Banks Investigate Disputes? Let’s Look at the Bank Investigation Process & Find Out.

If a cardholder has a problem with a transaction, and they’re unable to resolve the problem directly with the merchant, they have the option to contact the bank and dispute the charge. You’re probably already aware of that fact. What you may not fully understand, though, is how the bank determines liability for that dispute.

How, exactly, do issuers decide which party is at fault…and who has to pay? How do banks investigate disputes?

Today, let’s examine this question. We’ll explore the process used by bank investigation departments, what evidence they consider, and how long the investigation should take.

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What are the Steps of the Dispute Investigation Process?

The process begins when a cardholder contacts their bank. The buyer may claim that the transaction in question was unauthorized, or that it didn’t reflect what the seller promised at the time of purchase.

The card-issuing bank is expected to examine the details of each dispute and make a fair, impartial judgment to determine liability. The card networks have extensive and complex guidelines for this, and these rules determine how banks investigate disputes for the relevant card brand.

In very general terms, the process as to how do banks investigate chargebacks goes as follows:

The customer makes a complaint regarding a transaction

The buyer might claim that the merchandise never arrived, or that it didn’t live up to expectations. The buyer could also claim the transaction was not authorized.

An investigator examines the claim

A representative from the bank investigation department, trained in fraud detection and chargeback procedures, examines the cardholder’s claim.

(Video) How do banks investigate disputes?

The bank gathers evidence about the customer’s claim

The investigator gathers relevant information about the transaction. With Visa, this can be done automatically through Visa Resolve Online. Mastercard has similar processes for automatic data retrieval.

The investigator examines the transaction based on the customer’s claim

The investigator reviews the transaction data and evaluates whether the buyer’s claim is reasonable, based on the transaction details available to them.

The investigator makes a decision

The issuer decides to either reject the inquiry, or file a chargeback on the customer’s behalf. If it’s the latter, the bank issues a provisional credit to the cardholder, covering the buyer’s losses, which the bank will later recover from the merchant.

Once you understand the general bank dispute investigation process above, the obvious next question is: how long until a resolution is reached?

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How Long Do Bank Dispute Investigations Take?

If fraud is reported or a ‘not authorized’ dispute is lodged, a 10-day period begins in which the bank must complete their investigation. The bank can ask for an extension, but if the investigation takes more than 10 days to perform, they will typically issue the cardholder a provisional refund. In fact, most issuers will automatically offer a temporary credit at the start of an investigation to make their customer happy.

The actual investigation process is just the beginning, though. For instance, if the incident shows signs of a larger, coordinated scheme, the bank may relay the matter to law enforcement or other agencies, especially for interstate offenses..

Even if law enforcement doesn’t get involved, the chargeback process could take weeks, or even months, before it’s finally resolved. It depends on whether the merchant opts to fight back against the dispute claim.

How the Bank Examines the Evidence

Let’s assume a customer contacts their issuing bank and claims that a transaction was unauthorized. Once the bank receives the cardholder’s inquiry, the Federal Trade Commission rules give them 30 days to respond, acknowledging the customer’s claim. In an effort to provide better service to customers, though, banks will generally move quickly on disputes.

The bank initiates a payment fraud investigation, gathering information about the transaction from the cardholder. They review pertinent details, such as whether the charge was a card-present or card-not-present transaction.

The bank also examines whether the charge fits the cardholder’s usual purchasing habits. For instance, investigators will consider whether the cardholder had ever been a customer of the merchant in question before. This information is an integral part of how banks investigate disputes and establish whether the cardholder made a specific purchase.

(Video) Review fraud investigation steps

If the bank determines that the transaction in question was, in fact, a fraudulent charge, they may choose to contact the authorities. At that point, the FBI may decide to get involved if there are signs suggesting a larger pattern, especially one that crosses state lines. In most cases, though, the bank will handle the situation through its internal fraud team.

How Merchants Can Influence the Bank Dispute Investigation Timeline

When a bank issues a chargeback, the merchant will be notified and provided with a reason code explaining their decision. The merchant has a choice here; they can accept the dispute claim, and the resulting losses. Or, if they believe the dispute claim is invalid (a practice called friendly fraud), they can fight back.

The merchant also receives an advice letter from their issuer, detailing the evidence needed if the merchant wishes to fight the claim. They can do this through a process called representment. The merchant literally “re-presents” the transaction to the issuer, along with evidence to support their claim that the transaction was legitimate and should be upheld.

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How Do Banks Investigate Disputes? (2)

Specific timelines for merchants to gather evidence and documentation vary, depending on the merchant’s acquiring bank. This article offers more detailed information about chargeback time limits for merchants across different phases of the chargeback process.

After a merchant submits their representment case, there could be three potential outcomes, each impacting the dispute investigation timeline:

Outcome #1

If the issuer finds the merchant’s evidence lacking, the chargeback will stand. The cardholder would then keep the credit, which is made permanent. The merchant will be notified of this decision and is given time to respond.

Outcome #2

If the issuer decides the merchant’s evidence is sufficient to prove the transaction legitimate, the chargeback will be reversed. The funds will be returned to the merchant (minus nonrefundable chargeback fees), and the provisional credit may be removed from the cardholder’s account.

Outcome #3

If the merchant successfully refutes the case, but another claim is presented by the cardholder that shows additional evidence, a “second chargeback” may occur. The bank files a second chargeback based on new information from the cardholder or because of a change to the chargeback code.

(Video) What is a Credit Card Fraud Investigation?

What Does the Bank Do in Cases of Fraud?

In fraud cases, the cardholder’s liability is limited by law to $50 for a credit card transaction. For a debit card, the fraud liability is $500 if reported within 60 days. Of course, many banks offer “zero-liability” cards to cardholders, meaning the bank protects the cardholder from any loss.

The bank will advise the customer to immediately contact the three credit reporting bureaus (Equifax, Experian, and TransUnion) with a fraud case. The cardholder can request an immediate credit freeze, which will prevent potential damage to the customer’s credit rating.

The bank wants to move fast. But, like we discussed above, it can take several additional weeks to fully investigate the charge if the merchant provides evidence that the dispute is a case of friendly fraud.

If the merchant submits a representment, the bank must repeat its investigation, taking additional evidence into account. While all this is happening, the money is still tied up. Neither the merchant, the bank, nor the cardholder has access to the funds.

All totaled, it’s not uncommon for the chargeback process to take more than a month—or even several months—to finally resolve.

What Merchant Evidence Will the Bank Consider?

If a merchant can supply the issuing bank with compelling evidence to prove that the disputed transaction was legitimate, the bank may overturn the chargeback. What makes that evidence ‘compelling’ is whether or not it disproves the cardholder’s claim via factual, tangible proof.

Common examples of merchant evidence accepted for bank dispute investigations include:

How Do Banks Investigate Disputes? (3)

Providing any proof of purchase (sales receipts, etc.)

How Do Banks Investigate Disputes? (4)

(Video) How do banks investigate unauthorized transactions?

Shipping, tracking, and delivery information/confirmation

How Do Banks Investigate Disputes? (5)

Conversation logs or other communication conducted with the cardholder

How Do Banks Investigate Disputes? (6)

Evidence: photographs, screenshots, etc., to prove the transaction was legitimate

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After Investigation: Is the Bank’s Decision Final?

Even after representment, the cardholder also has a second chance to review the matter and decide whether or not to proceed with further action. So, how do banks investigate disputes that comeaftera dispute?

The cardholder may accept the bank’s decision or file a secondary dispute called a second presentment, chargeback arbitration, or pre-arbitration chargeback, depending on the card scheme in question. Basically, if the cardholder can provide further evidence rebuking the merchant’s legitimacy claim… the bank will remove the funds from the merchant’s account once more and ask them to decide: accept the chargeback or proceed to arbitration.

During arbitration, the issuing and acquiring banks step out of the matter altogether, allowing the card network to mediate on their behalf. As a ‘neutral’ third-party, the card network will weigh the evidence on both sides of the case, then make a final decision… and by final, we mean final. There is no third chance to rectify a faulty transaction past the arbitration stage.

Resolving Disputes Outside the Chargeback Process

The chargeback process is an essential and helpful consumer protection tool. However, it’s in the interest of all parties—merchants, banks, and cardholders—to avoid chargebacks whenever possible.

Before asking "how do banks investigate disputes," the most important thing to remember is that cardholders must contact the merchant before the bank. Many neglect to do this, however.

It’s best for everyone if the cardholder directly contacts the merchant before filing a chargeback. In many cases, the merchant is willing to work with the cardholder to resolve the situation and avoid a dispute. This is a “win-win” scenario for all parties: the cardholder could see faster resolution while the merchant and issuer are spared the cost of the dispute process.

Have additional questions about the dispute process or how banks investigate chargebacks? Want to learn how merchants and banks can save money through chargeback management? Click below to speak with one of our dispute experts today.

(Video) What does a fraud analyst do?


How do banks investigate dispute charges? ›

The card-issuing bank or credit union is responsible for reviewing the transaction data and evaluating whether a customer's claim of fraud has any validity to it. The bank or credit union may contact the merchant and ask for proof that the debit card customer permitted the charge.

How long does a bank investigate a dispute? ›

Per current regulations, banks take between 30 and 90 days to evaluate, respond, and resolve problematic transactions. In some instances, law enforcement might be informed depending on the fraud and identity theft level.

What are the chances of winning a bank dispute? ›

You might not always get a fair outcome when you dispute a chargeback, but you can increase your chances of winning by providing the right documents. Per our experience, if you do everything right, you can expect a 65% to 75% success rate.

What happens when a bank files a dispute? ›

Your card issuer reviews the dispute and will decide if it's valid or if you have to pay. If your issuer accepts the dispute, they'll pass it on to the card network, such as Visa, Mastercard, American Express or Discover, and you may receive a temporary account credit.

Can disputing charges get you in trouble? ›

Can you Get in Trouble for Disputing a Charge? Yes. Cardholders can face consequences for abusing the chargeback process.

Can a bank take your money back after a dispute? ›

During a transaction dispute, the funds from the original transaction may be forcibly removed from the merchant's account and returned to the cardholder. To do this, the cardholder must first demonstrate that they attempted to resolve the issue with the merchant before filing the dispute.

Can police investigate your bank account? ›

Neogy[13] held that the police authorities are vested with enough powers to seize the bank account of the accused person during the course of their investigation under Section 102 because the bank accounts are covered under the term “property” as defined under Section 102 CrPC.

Do banks go after credit card thieves? ›

A: Yes, in a general sense. However, the bank may have different standards and processes for conducting a fraud investigation on a debit card, as compared to a credit card fraud investigation. This is because debit cards are tied to funds actually in the cardholder's account, rather than to a line of credit.

What happens if a bank doesn't respond to a dispute? ›

If a credit reporting company doesn't respond to your dispute or doesn't respond adequately, you have rights: You have the right to add a statement to your credit file.

Which banks are best at disputes? ›

Few things are more frustrating than trying to get in touch with your bank when something has gone wrong with your checking account or savings account.
Key Findings
  • Barclays Bank. ...
  • Synchrony Financial. ...
  • Ally Financial. ...
  • Netspend Corporation. ...
  • 5. ( ...
  • 5. ( ...
  • First Citizens BancShares. ...
  • Navy Federal Credit Union.
Jan 15, 2020

How do you win a bank dispute easy? ›

To win a chargeback dispute as a merchant, you must have evidence that is compelling enough to persuade the cardholder's bank to reevaluate the case. Depending on the reason for the chargeback, your evidence needs to prove you: verified the identity of the shopper. processed the transaction correctly.

How often are bank disputes won? ›

Your odds of successfully disputing a transaction are pretty decent. Businesses don't even bother fighting most chargebacks, contesting only 43 percent of disputes filed against them. Just 12 percent of chargebacks go their way. But there are ways you can increase your chances of success.

What happens if you falsely dispute a transaction? ›

Filing a false credit card dispute should never be done; it is credit card fraud and can have consequences like fines, court fees, jail time, blacklisting, and hurt your credit scores.

Why would a bank deny a dispute? ›

If the cardholder doesn't make a compelling enough case to their bank, or doesn't have a valid reason for filing a chargeback, the bank may refuse to open a dispute. Merchants can also provide evidence refuting a chargeback.

How do banks investigate unauthorized transactions? ›

How Do Banks Investigate Fraud? Bank investigators will usually start with the transaction data and look for likely indicators of fraud. Time stamps, location data, IP addresses, and other elements can be used to prove whether or not the cardholder was involved in the transaction.

What is a good excuse to dispute a charge? ›

We can divide all valid disputes into one of five basic categories: criminal fraud, authorization errors, processing errors, fulfillment errors, or merchant abuse.

Can I dispute a charge that I willingly paid for? ›

Bad service and service not rendered are also eligible reasons to dispute a charge, even if you willingly made the purchase.

Do banks usually grant disputes? ›

Banks will usually grant their customers' requests for chargebacks, but if the reason for the dispute clearly falls outside the list of legitimate reasons for which a chargeback may be filed, they may reject the request and tell the customer they must work things out with the merchant.

How do you know if a bank is investigating you? ›

How do I know my bank account is under investigation? If your bank account is under investigation, the bank will typically notify you. You might receive an informal notification via email, but generally, you'll also get a formal notification by mail.

What does a bank consider suspicious activity? ›

As FinCEN—the Financial Crimes Enforcement Network—has helped describe, transactions that “serve no business or other legal purpose and for which available facts provide no reasonable explanation” are one of the most common signs of suspicious activity.

What happens when a bank investigates you? ›

The bank initiates a payment fraud investigation, gathering information about the transaction from the cardholder. They review pertinent details, such as whether the charge was a card-present or card-not-present transaction. The bank also examines whether the charge fits the cardholder's usual purchasing habits.

Can the bank trace who used your card? ›

Can the bank find out who used it? No, the bank cannot determine who used your debit card directly. However, if you tell the bank that you believe someone has used your card without your permission, they may be able to investigate and provide you with some information about the transaction.

Can the bank find out who used my credit card? ›

Can You Track Someone Who Used Your Credit Card Online? No. However, if you report the fraud in a timely manner, the bank or card issuer will open an investigation. Banks have a system for investigating credit card fraud, including some standard procedures.

How do credit card thieves get caught? ›

As for how credit card companies investigate fraud, the issuer's internal investigation team will begin by gathering evidence about any disputed transactions. It may check for things like transaction timestamps, the IP address of the person who made the disputed purchase, and the purchaser's geographic location.

How long does it take for a bank to settle a dispute? ›

Transaction disputes typically take 60 to 90 days to resolve, although particularly complicated disputes may take longer.

Do banks really investigate chargebacks? ›

Do Banks Really Investigate Disputes? Yes. They do so as a protection service for their customers so that they don't have to worry about the ever-increasing sophistication of fraud.

Will they do an investigation if I dispute charges on my credit card? ›

Once you report fraudulent charges and provide any necessary documentation, the bank has 30 days to respond to your issue and begin an investigation. From there, the bank has to complete the investigation within 90 days.

What if I get caught lying about a chargeback? ›

You cannot go to jail for filing credit card disputes. The Fair Credit Billing Act directly protects consumers from incorrect and fraudulent charges. But if you file fraudulent chargebacks, you risk lawsuits and criminal charges. A fraudulent chargeback is a false dispute made by a consumer to secure a refund.

How long does a chargeback investigation take? ›

How Long Does the Chargeback Process Take? Depending on the reason code, issuing bank, and credit card network, the entire process usually takes around 30 to 90 days. Cases that go to arbitration will take longer.

Who pays when you dispute a charge? ›

You must keep paying your credit card bill like normal during the dispute process. As mentioned previously, card issuers usually remove disputed charges from the bill until the dispute is resolved, but you're still responsible for paying the rest of the bill.

Who investigates credit card disputes? ›

In most cases, though, the bank will handle the situation themselves, through their internal fraud team. The FBI may choose to get involved in a card fraud incident if there are signs suggesting a larger pattern. In most cases, though, the bank handles the situation themselves through their internal fraud team.

What happens if you dispute too many charges? ›

You'll almost certainly give up your chance of getting a refund. Some businesses also blacklist customers who initiate illegitimate chargebacks. And if your credit card issuer believes you're violating your card agreement repeatedly, it may close your account.


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