How do credit card refunds work?

A refund is a request for your money back with reference to a specific credit card transaction.

Upon making a purchase with a credit card and subsequently seeking a refund, it's important to note that the refund will not be provided in cash. Instead, an equivalent credit will be applied to your account, reflecting the initial purchase amount.

The procedure generally takes effect once the merchant consents to refund the item. Yet, if the merchant declines or encounters difficulties in doing so, you might have the option to seek a chargeback.

Additionally, it’s helpful to note that credit card refunds or chargebacks won’t affect your credit score.

Credit card refunds can be obtained in various situations, either through the merchant or your credit card issuer. Some frequently encountered scenarios include:

• Returns: Where you adhere to the merchan't return policy and send back an unwanted or defective item.
• Duplicate transactions: Instances where a single transaction is billed multiple times to your account.
• Faulty point of sale (POS) system: Occurrences where a payment processing device is determined to be flawed.
• Erroneous transactions: Clearly identifiable cases where the transaction was not authorised or executed by you.
• Lost or stolen cards: Cases where fraudulent transactions occur after reporting the card as lost or stolen.

There are some situations in which your refund claim might be knocked back. These can include but aren’t limited to:

• Failure to adhere to the returns policy: This can occur when you return an item to a merchant, but the return policy rules are not met, such as if the item has been worn or opened. Breaking these rules can invalidate a refund.
• Revealing your credit card information: If you’ve shared your credit card or its sensitive details with others - even family and friends that you may trust - and they've used it to make a purchase, you may be ineligible for a refund.
• Neglect to promptly report a lost or stolen card: If your credit card is lost or stolen and you delay in reporting this occurrence, you may nullify your chances of a refund, even if your card's been used by the thief unlawfully.
• Pre-authorised funds: If you’ve given a merchant permission to “hold” funds as a deposit or for incidental charges (i.e. hotels or tour bookings) you may not be entitled to a refund if you break the rules of the agreement.

The time it takes to process a credit card refund can depend on the nature of the refund. Typically, you may request a refund directly from the merchant (retailer, wholesaler or ecommerce outlet) in question or, if that doesn’t work, ask your credit card company for a chargeback.

Getting a refund from a merchant generally takes around five business days. Suppose you’ve returned a dress you purchased online within the specified refund period and the merchant issues a refund to your credit card. Once a reversal of charges is initiated, you’ll probably see the transaction listed on your credit card account within the week. 

If you’re accidentally billed twice for the same transaction, possibly due to a point-of-sale machine error, you can request the merchant for a refund if the charges are not automatically reversed.

Obtaining a refund from your card issuer can occur in a few days, or it can take months. Consider these two cases:

Loss or theft of credit card

If you lose your credit card or if someone steals it, you may see fraudulent transactions on your credit card statement. If your card is stolen it’s important to cancel it immediately. You’ll need to report the loss or theft to your credit card company before you can get a refund for any illicit charges. 

The card issuer will investigate to confirm that the charges are indeed fraudulent, and not the result of you giving your credit card or its details to someone else. Your credit card company may require you to report loss or theft of your card within a stipulated time frame, and if you fail to do so, you may bear the liability for fraudulent transactions.

Chargebacks

Suppose you try to return a product but the merchant refuses to refund the money. This can happen, for instance, if they think you’ve violated their returns policy or not returned the product in the expected condition. However, if you feel you are entitled to a refund, you may request your credit provider for a chargeback, or reversal of the charges.

Banks and credit unions offer credit cards, but the operation of the card payment systems they utilise is managed by payment processing networks. The most common networks in Australia are Visa, Mastercard and American Express.

These payment networks have regulations that define the circumstances under which a customer can request a chargeback. Your credit provider will conduct a review to determine if your claim is valid. If they decide to pursue this claim, they’ll request that the merchant’s bank refund your money. However, you may need to provide evidence.

The merchant’s bank can attempt to reject the chargeback if it believes the request is invalid. If the banks disagree about whether a refund should be provided, they may ask the payment network to mediate. Their decision is final.

Credit card companies are required to give the merchant time to respond, which can be as long as 45 days. As a result, if the transaction is reversed, it may not show up for up to two months. A point to note here is that you may have to pay the charge as part of your credit card bill to avoid paying any late fees or interest on the amount. Once you are refunded the amount, it will reflect in a future credit card statement and bring down your credit card bill.

For most refunds you shouldn’t be asked for your Card Verification Value (CVV), also known as a Card Verification Code (CVC). This three digit code, found on the back of your credit card, helps to ensure your purchases are secure and aims to prevent unauthorised use of your card.

However, if a merchant is processing your refund as a mail order or telephone order they may require your CVV/CVC to complete the reimbursement. This is often because they're considered riskier than card-present transaction​s.

If you’re unsure as to whether you should be giving over your CVV/CVC, it may be worth contacting your credit provider to determine if this is actually necessary and to discuss alternative options.

Once a refund has been reimbursed back to your account, it will show up as a credit. Essentially, it will top up your credit balance by whatever amount the value of the refund represents. For example, if your current balance is $1,200 and you receive a refund for $220, your balance will grow to $1,440.

Alternatively, if you made a purchase late in your billing period, obtained a refund but it wasn’t processed until the start of your next billing period, you’d see a surplus in your new opening balance.