Chargebacks can significantly disrupt a merchant’s business, depleting profits and incurring both financial costs and time expenditures to address them. Moreover, the outcome may still not favor the merchant, despite having compelling proof.

If all else fails, though, there is another path available. This article will walk you through the possibility of pursuing the matter in small claims court against the cardholder.

Can Merchants Take Cardholders to Court Over Chargebacks?

Yes, merchants can take cardholders to court for chargebacks, particularly if they believe the chargeback was fraudulent or unjustified. To do this, the merchant would file a lawsuit in small claims court, seeking to recover the funds that were charged back, plus any additional damages or costs incurred. 

That said, the merchant will still need to prove their case. They must demonstrate that the chargeback was invalid and that the customer received the goods or services as agreed.

Small Claims Court: The Last Stop in the Chargeback Process

As mentioned in previous articles, merchants have legal rights when dealing with chargebacks. If a dispute was unfounded, they can start by responding through representment.

Representment 

Confronted with an unwarranted chargeback, the merchant’s first course of action should be representment. This step allows merchants to submit proof to the card issuer to demonstrate that the transaction was valid and should not have been reversed. Evidence can range from documentation of the sale, delivery confirmation, communications with the customer, or any other pertinent information that validates the seller’s claim.

Arbitration 

If representment does not resolve the issue, merchants can opt for arbitration. In this scenario, the credit card network (such as Visa or Mastercard) intervenes to examine the facts and make a final ruling. It’s important to recognize that arbitration involves more time and money, and the party found liable would face significant arbitration fees.

Small Claims Court 

Small claims court stands as another recourse. This venue allows the merchant to put forth their case to a judge who can then issue a binding judgment. It is vital, however, to balance the potential legal expenses and the effort required against the likelihood of winning the case, as legal proceedings can be burdensome, and the outcome is never guaranteed.

In any of these situations, being thoroughly prepared is indispensable. Having all documents and evidence in order is crucial. Understanding one’s rights and knowing the proper procedures to follow when disputing a chargeback will empower merchants to assert their position and seek equitable resolution when necessary.

What to Know Before Entering Small Claims Court

Considering a move to small claims court for a chargeback dispute requires an understanding of several key aspects:

Monetary Limits 

The financial threshold for cases in small claims court isn’t uniform; it varies by location. Commonly, the limit is set between $2,500 and $10,000. For example, in Florida, the limit is currently $8,000. It’s important to check the limits in one’s area to make sure a claim is within the permissible range.

Filing Fees 

To file a case in small claims court, there’s a mandatory filing fee which differs by jurisdiction and the size of the claim, typically between $30 and $200. Factor this expense into the decision-making process when considering a small claims action.

Incidental Expenses 

There could be additional costs that arise, including expenses for serving documents to the involved party, securing evidence, or obtaining legal guidance. Anticipate these potential outlays.

Time Commitment 

A small claims court action is not just a monetary commitment; it’s a temporal one as well. From case preparation to attending the hearing, it’s crucial to assess whether the time investment aligns with the potential recovery from the claim.

Self-Representation 

Small claims court proceedings usually require the merchant to represent themself, as attorneys may not be permitted to argue on one’s behalf. This necessitates a solid grasp of the legal process and the ability to effectively present a case.

Taking these factors into account is essential for making a judicious decision on whether to pursue a chargeback claim in small claims court based on individual circumstances.

How Does a Hearing Progress?

Let’s say one finds themselves at a juncture where every other method to settle a dispute has been attempted, and small claims court appears to be the final resort. It’s crucial to understand what this involves and the duration it might take. Here’s a breakdown of the typical steps:

Step #1 | Initiation of the Claim 

Organize documentation first, detailing the rationale behind the claim and gathering all pertinent evidence. The merchant then files this claim at the small claims court within the jurisdiction where the customer resides. Remember, filing fees are part of this step and vary based on the claim amount and the court’s location.

Step #2 | Notification of the Claim 

The next move is to formally notify the customer of the ongoing legal action. This official notification, or serving of the claim, can be executed via certified mail, a sheriff, or a process server, ensuring legal protocols are strictly followed.

Step #3 | Preparing for the Hearing 

This stage demands thorough preparation for a court date. Arrange evidence, strategize the presentation, and be acquainted with the court’s procedures. Typically, legal representation is not an option in small claims court, so merchants should be prepared to stand and advocate for their case independently.

Step #4 | The Court Hearing 

This is the moment to argue a case in front of the judge. Clarity, conciseness, and readiness to engage with the judge’s inquiries are essential. Equally, one should be ready to counter any arguments presented by the cardholder.

Step #5 | The Decision 

Following the hearing, the judge will deliver a decision. This could be immediate or may require further deliberation. A ruling in one’s favor would include a judgment specifying the repayment amount by the customer. If the decision is not in one’s favor, the chargeback will remain as is.

Step #6 | Enforcement of Judgment 

Securing a court judgment is one thing; actual collection is another. If the customer doesn’t voluntarily settle, additional steps — and possibly more fees — may be necessary to enforce the judgment.

Deciding to pursue a chargeback claim in small claims court is a significant undertaking that hinges on a strong case and a commitment to follow through. Weigh the benefits against the demands of the process, prepare comprehensively, and proceed with full awareness of what the journey entails. It’s a decision that should balance the interests of one’s business with practical and financial considerations.