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ChargeBack.cc might be legal, but who is it good for?

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When the Australian startup ChargeBack.cc launched last week, cofounder James Peter tinkered around with Google’s AdWords tool to find the perfect, stickiest tagline: "ChargeBack.cc — Get your money back." The punchy promise boosted the startup to the top of the popular Silicon Valley forum Hacker News, bringing about 5,000 new visitors to the site.

ChargeBack.cc promises to facilitate chargebacks, which occur when you complain about an erroneous or scammy charge and the credit card company reverses it. Fill out ChargeBack’s form with information about the transaction, and the startup then contacts the seller and offers to help resolve the dispute before it gets filed as a chargeback.

"I think there is a big need for this type of service," one commenter wrote. "Like last month when the NYTimes charged me $15 but a bug in their database prevented me from actually using my account. Took two painful hours to get a refund."

At first blush, ChargeBack sounds like a fierce consumer advocate

At first blush, ChargeBack sounds like a fierce consumer advocate — perhaps almost too fierce. Language like "we strongly recommend that you take this opportunity to resolve the dispute before we escalate it further" seemed menacing. Originally, ChargeBack even used the word "protection" on its homepage, evoking an image of a mafioso bullying a store owner, extracting a fee in exchange for making chargeback claims go away. People wondered if it was even legal. "Seems a bit sketchy to me," was the first comment.

The service seems to be legal in the 50 states, as long as it avoids the impression that it is practicing law, and actually, ChargeBack is a huge boon for merchants. It just might not be so good for consumers.

The Fair Credit Billing Act, passed in 1975, contains strong protections for credit card consumers and puts the burden of proof on the creditor rather than the customer. In cases of fraud, customers can usually get charges undone with just a phone call to the bank or credit card company. With other types of disputes, a phone call to the merchant may be required. If that doesn’t work, customers must file a written request to the credit card company’s billing issues department within 60 days of receiving the bill.

ChargeBack and services like it make this process slightly easier by letting customers complain online. But they’re profiting off the fact that most customers don’t know how easy it is to file a chargeback, similar to the way FreeCreditReport.com and other sites profited by copying the government-commissioned AnnualCreditReport.com, sucking in and upselling customers who could have ordered their free reports themselves.

The current system is heavily biased in favor of customers

For merchants, however, chargebacks are hugely inconvenient. The current system is heavily biased in favor of consumers; merchants lose disputes 79 percent of the time, according to ChargeBack. According to a white paper from payments processor TSYS, chargebacks are taking up an increasing amount of merchants’ time; they also face additional fees from credit card processors if more than one percent of their transactions are charged back.

"A single chargeback can cost a merchant anywhere between $5 to $200 just for having it occur in their bank account," Peter told The Verge in an email. Handing irate customers off to a third party could reduce costs and staff time, he said.

Peter says that ChargeBack gets customers to talk directly to merchants before filing a formal dispute with the bank or credit card company, which they’re technically supposed to do anyway. However, consumer advocates are skeptical. Using a third party means consumers aren’t invoking their rights. If they don’t file officially before the deadline, they forfeit the law’s protection.

"It sounds like only a downside for the consumer and no upside."

"It sounds like only a downside for the consumer and no upside," said Ahmad Keshavarz, a consumer rights attorney in Brooklyn, New York. "The third party can't do anything more than you can do, and you can do a lot more than they can do."

ChargeBack plans to resolve disputes for free, hoping to make money by upselling merchants on extra services such as advice for how to lower their overall chargeback rate. Since merchants are its clients, ChargeBack is likely to favor them over consumers. BillGuard.com, which also offers dispute resolution as part of its personal finance monitoring service, may be more inclined to advocate for consumers since it earns money from consumer subscriptions. Meanwhile, companies like Chargeback Mediators don't even bother to advertise to consumers.

For now, the case for a consumer going to a chargeback mediator is pretty thin. Most consumers don't want mediation, which implies compromise — they just want their money back, and the current system is already pretty good at that. Startups will have to show that they can make the process smoother and faster while protecting consumers' rights. Until then, you might be better off enduring a little hold music in order to resolve complaints directly.

The Verge
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