When Is a Credit Card Charge Considered Unauthorized?

For some consumers, it may not be entirely clear when they can report a transaction as authorized or unauthorized. As a business owner, it's your responsibility and obligation to make sure your customers are fully aware of what they are purchasing. A merchant is required to properly identify themselves, such as their business name and where they operate from. As well as what products or services the customer is buying and for what price. There should be a clear and concise description that informs the customer of what they should expect, along with all terms and conditions.

This information is then provided to the cardholder prior to the transaction taking place. A cardholder is the individual who owns the debit or credit card being used. If the cardholder isn’t present or notified of each one of these obligations during the time of checkout, then the cardholder has the right to dispute the transaction as unauthorized. Any product or service that is purchased without the cardholder's knowledge can be reported to their issuing bank for further review.

Examples of Unauthorized Charges

Identity Theft

Identity theft is a common reason for unauthorized charges to occur. This can be if you notice charges in your bank account that you didn't make. This would mean that your card or account has been compromised and your issuing bank should stop all card charges.

Family Member or Child Use

Oftentimes, a cardholder can have a family member borrow their credit card with or without their knowledge. If the card is used by a family member without the cardholder's knowledge, then the charges can be considered unauthorized. However, if the card is used by a family member with the cardholder's knowledge but the amount isn't what the cardholder permitted - this can also be considered as an unauthorized charge.

Merchant Not Clear About Billing

As mentioned above, it's the job of the merchant to make sure that customers are aware of pricing and billing structures. Sometimes merchants add recurring billing to a purchase where the customer isn't aware. Then, once the billing cycle hits, the customer doesn't know why they are being charged. Understanding billing structures and educating customers on your billing structure is very important to running a business. If a customer is charged for a billing cycle that they weren't aware of, this is an unauthorized charge.

Duplicate Billing

Duplicate billing is a common error. Sometimes there can be delays or software errors that can cause a charge to be run twice. There are also times where merchants run a card twice, not knowing it has already been through once. Regardless, if a customer is charged twice, this can be considered an unauthorized charge.

Who is Liable for Unauthorized Charge?

Unauthorized charges are common enough that protections are in place to safeguard consumers when they occur. One great protection is that, as a consumer, you are only liable for up to $50 in charges, no matter how high the charge is. Another layer of protection is the "zero liability" guarantee from both Visa and Mastercard. This even releases the consumer from the $50 in charges, so that way they aren't on the hook.

Depending on how the charge was ran there may be additional protections. For instance, if your card was charged using just the numbers and not the card itself, you aren't liable in any way. This typically happens when the card is used during an online transaction.

How to Dispute an Unauthorized Charge

In order to file a dispute you'll need to contact your issuing bank. This is the bank that the cardholder uses for either a checking or savings account. In order to protect your rights, you should contact your issuing bank and inform them of the charges and also send a written notice. A written notice is great to have on file and can even help your issuing bank with their investigation.

Here is an example of a dispute letter:

One thing to note is that each card issuer has their own procedure on how to file a dispute. Keep in mind, you only have 60 days from the date of the transaction to file a dispute. A good rule of thumb is to report unauthorized charges right away as soon as you notice them. You shouldn't wait around and think it's just an error that might fix itself.

One last defense is to use the major credit bureaus like Equifax, Experian or TransUnion. They can help you prevent more unauthorized transactions, hopefully stopping the crook from damaging your identity further.

Resolving Your Dispute

The card issuer has approximately 30 days to look at your dispute. They should provide mediation within 90 days after receiving your complete filing. However, if they find that the charges are legitimate, then they have the same time period to respond.

There are some cases when the card issuer's decision, might not be what you were expecting. If you disagree with their decision you can contact the Consumer Financial Protection Bureau to try to further your complaint.

In Conclusion

It's the merchants' responsibility to make sure you are aware of what you are buying, for what price and any other important specs. What's not on the merchant is any fraud that occurs outside of their watch, like from a friend or total stranger. As a consumer, the responsibility falls on each and every one of us to consistently monitor our accounts for any fraud-related activities. We need to try to keep our accounts safe and practice fraud prevention tricks to help mitigate any potential threats. Business owners can only do so much when it's up to cardholders to know the status of their accounts and cards.

If you're a business owner and you would like to learn more about fraud prevention, please view our tips here.

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