A novelty when introduced in the mid-20th century, credit cards are now used with great frequency. Because now balances can be instantly verified, credit card transactions amount to trillions of dollars on an annual basis. With all of this financial activity going on, it is not surprising that computer glitches, human error and, it must be said, fraudulent actions result in unauthorized payments to merchants and other recipients.
When such situations arise, it is necessary for cardholders to move swiftly in order to resolve the discrepancies and secure the credit line.
Read More: How Do Credit Cards Work?
Credit Card Processing in the 21st Century
In essence, a credit card is a loan with a very short term. The loan amount is the credit limit available to the cardholder, i.e. $5,000, $10,000 or $100,000. As the holder makes purchases with the card, that limit is reduced by the principal spent and interest owed. Those who pay in full each month restore the limit to its original amount.
As purchases are made, online or at a specific location, the credit card information is immediately forwarded to the merchant's bank. That institution must then receive permission from the network, Visa, Mastercard, Discover, etc., which, in turn, receives an approval or denial message from the bank that issued the credit card.
Technology has allowed this process to take place in seconds. The issuing bank checks the customer's available balance and alerts the merchant whether or not funds are available for the transaction in question. Available monies depend on the manner in which a cardholder pays off the credit card's outstanding balance. Online remittance is quickest, while snail mail takes longer. Billing cycles cover 30 days, more or less, so bills are issued monthly.
Paying in full prevents the issuing bank from charging interest on the balance. Paying the minimum due, often one to three percent of the balance owed, racks up more interest to be paid. Needless to say, unauthorized charges add to the balance and, consequently, the accompanying interest.
How Do Unwarranted Charges Occur?
Unauthorized charges happen when a credit card is stolen or when the card number is compromised, allowing others to utilize the credit line. Sometimes, though, technological malfunctions or administrative lapses can lead to duplicated charges or misdirected debits. In such cases, credit card holders have recourse options.
Read More: What Are the Causes of Credit Card Fraud?
How to Block Credit Card Transactions
The good news is that the law provides for people whose credit cards are inaccurately or unjustifiable charged. Timely detection and reporting are key to resolving the matter in the cardholder's favor. The Fair Credit Billing Act, as well as the Electronic Funds Transfer Act, were passed by the U.S. Congress to protect credit and debit cardholders, respectively, from financial loss due to criminal theft or computational errors.
When an unauthorized charge is discovered, the holder should first contact the merchant to dispute the payment. A business has a vested interest in repeat customers so most would attempt to bring a quick resolution to the dispute. However, if the merchant made the charge without permission, it could be subject to a fine by its bank.
At any rate, if that initial inquiry proves fruitless, the customer can take the disputed transaction to the customer service department of the issuing bank or credit card issuer (the number is on the back of the card). The bank will stop interest and penalties while it investigates. Ordinarily, banks take two billing cycles to complete this probe, at which point they notify cardholders of the results.
Read More: Credit Card Chargeback Time Limit
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.