How long will banks give customers refunds who paid by CC when Companies go bust?

music.babe75

Don't know if this is the right forum, mods please move it if needs be.

With the likes of 1800 hotels and other companies going bust, if a customer has paid by Credit Card, they can get onto their bank to request a chargeback so they will eventually get a refund.

How long will banks continue to do this? Will they be able to bring in a clause to put an end to it?

They must be losing a bomb when a big company goes......?

Will banks become stricter on giving out CC merchant accounts to some types of businesses?

What do you think?

BuffyBot

Chargebacks can normally be made for 6 months after the charge has been made to the card, if I recall correctly.

How long will banks continue to do this? Will they be able to bring in a clause to put an end to it?

They can't. It's part of the Visa/Mastercard scheme. They have to provide this service as part of participating in the wider scheme.

music.babe75

OK, so the banks have to offer the facility as part of the wider scheme - which is good for the customer if they get caught paying for goods/services and the company goes bust.

From the banks point of view however............are they going to continually (potentially) losing a lot of money over this if more and more companies go under.

Will to look at safeguarding themselves and maybe stop issuing merchant accounts to hotel websites / furniture shops etc (just 2 examples I can think of). could they cancel merchant accounts with existing businesses if they see a company may be getting into trouble? Or could they bring in some restrictions .... maybe have the owner of the company have a 'fund' so to speak to cover any potential chargebacks??

dotsman

BuffyBot wrote: »

They can't. It's part of the Visa/Mastercard scheme. They have to provide this service as part of participating in the wider scheme.

It's more than just the Visa/Mastercard scheme. It's at the very heart of the concept of a credit/charge card (as opposed to a debit card). When you buy something via a credit/charge card, "you" are not actually buying it. You are asking your credit card company to buy it for you. The credit/charge card company then invoice you for the goods/services (hence you get a bill at the end of the month). Therefore, should you not receive it or there is some other non-resolvable issue with the supplier, you can refuse to pay your credit/charge card company.

Debit cards, on the other hand are very different. They are merely an electronic/automated way of transferring money from your account to the supplier's account (hence the money goes directly from your account into the supplier's account as soon as the payment is finalised). Your bank facilitate this, but are not directly acting as a full, separate entity between you and the supplier.

The whole concept behind the first charge cards was the very simple tab where, instead of maintaining a tab with every shop/restaurant/bar, you only had to maintain a tab with the charge card company, and it was they who bought your goods/services for you. Credit cards evolved from charge cards whereby they offer the same thing, except you do not have to clear you tab in full at the end of the month as the credit card company offers you a type of "overdraft" for any outstanding part of the bill (hence the interest free period - you are given a certain date by which you clear your tab, and whatever portion remains unpaid by this date is converted to an interest charging debt)

music.babe75

I understand how the credit card system works......

My point is..........say BOI has to refund €500K to its customers who have paid for hotels with 1800 hotels. So does BOI now say, we are not giving a merchant a/c to any new hotel websites....in case they go bust and BOI end up refunding loads more money to customers??

I understand the concept that the bank is billing us (the customer) for goods and services received, but why would BOI then continue to deal with say ABC hotels because they know they are in financial difficulty for example and know if they go bust they will end up refunding the customers.

OK, so the banks cannot refuse to offer the whole chargebacks services so is the only way they can cut down on it, be by refusing to offer merchant accounts (credit card accounts) to companies??

If they do this, less and less companies will be able to take Credit Cards (companies cant take Credit cards without a Merchant a/c)?

Presumably banks don't offer a merchant a/c with every Tom, Dick and Harry co? Presumably they need to apply for it? If a bank thinks its kinda dodgy and may not be able to fulfill its sales / provide its service they won#t offer a merchant a/c - will they??

unclebill98

Also remember that the protection applies to Visa Debit cards too.

I can see what your saying but it would be impossible to predict who is going to go bust and banks would be fighting for business so a company is bound to get set up.

Would the bond that travel agents have to keep not cover all these payouts?

BuffyBot

y point is..........say BOI has to refund €500K to its customers who have paid for hotels with 1800 hotels. So does BOI now say, we are not giving a merchant a/c to any new hotel websites....in case they go bust and BOI end up refunding loads more money to customers??

You're assuming a) the BOI won't be reclaiming the money from elsewhere. Remember the chargeback goes to the company's card processing bank, and they end up paying BOI. The card processing bank will then be dealing with the company's administrators/liquidators.

You're also assuming that b) this is big enough to make some kind of dent. In terms of the volumes of transactions processed, this is but a drop in the ocean. Banks factor in all these risks when entering the credit card schemes, and the risk is eventually passed down to the customer in terms of the interest rates etc being paid.

3DataModem

The vast majority of merchants have to hold a reserve with their processor or bank. Also there is a settlement delay for most merchants.

This means that a company goes bust, the reserve is their to cover the chargebacks and whatever amount remains unsettled.

I.e. You walk into DID electrical today and buy a TV with a credit card they may not see the money for 5-10 days. If they go bust before they get paid then the bank loses nothing and can use these funds to pay someone whose TV hasn't been delivered.