ABSTRACT

The customer’s right to cancel payment under the credit card system is much broader than those found in the competing systems, such as the checking system. The issuing bank’s obligation to pay does not actually become final at the point of the initial payment to the merchant’s bank. The cardholder has the right to withhold payment on the basis of any defence that it asserts against the merchant at whose place the transaction took place. If the cardholder receives goods which are not what he actually held them to be or agreed to pay for, he can refuse to pay the charge against his credit card account. More specifically, he can make his claim under contract law as the goods to not conform to the sales contract. Without any other recourse, the credit card issuers would find themselves in a particularly difficult situation if they could only collect payment charged to a customer’s credit card account only after proving that the merchant performed according to the sales contract. The issuing bank has the option of charging back the challenged transaction to the merchant’s bank. The charge back is accomplished in the same manner as the original payment transaction by the customer. The issuing bank sends the item through the Visa network seeking to recover the appropriate funds from the merchant’s bank and receives a credit from the Visa clearing house. In turn, in accordance with an agreement with the merchant, the merchant’s bank can charge back the disputed amount to the merchant’s account. Ultimately, therefore, the merchant bears the burden of obtaining payment from the cardholder.