banking law


July 19, 2023



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With increase in availability of credit facilities provided by the banks, consumers have replaced currency with credit cards with pre-approved credit limits, which in turn has given rise to online transactions. Though credit-card transactions are convenient, it does come with certain inherent risks such as credit card fraud and transactional glitches.

This article aims to understand the disputes arising out of such credit card transactions from the position of a merchant.

Credit card litigation can be a complex and a challenging process for merchants in the UAE. Broadly, a credit card litigation arises when a cardholder/customer notices a transaction that they suppose is not a valid transaction and disputes it by notifying their respective bank i.e., card-issuing bank.

Credit card disputes may arise for various reasons including but not limited to fraudulent transactions, billing errors, and customer dissatisfaction with a product or service. When a customer disputes a charge on their credit card, the issuer bank then initiates an investigation to determine whether the charge was genuine. The merchant is duly notified and is asked to furnish evidence such as transaction records or proof of purchase, etc.

If the bank determines that the charge was not genuine, the merchant may have to refund the amount to the customer and the issuer bank will then initiate a chargeback proceeding.

A chargeback is simply the reversal of a credit card transaction amount, meaning that the amount of the original sale amount (including a commission / discount) applied to the transaction.

Chargebacks are a common issue in the UAE and to address this issue, the Central Bank of the UAE (“CBUAE”) has issued guidelines on chargebacks, which aim to protect the interests of both customers and merchants in the UAE.

A charge back generally arises under the following circumstances:

  • When a particular transaction is not recognized by the cardholder.
  • When a transaction was not authorized by the cardholder.
  • Where the transaction was duplicated.
  • When the transaction was canceled but is recurring/direct debit transactions.
  • When the goods/services are not received.
  • When the goods/Services received are faulty.
  • When the goods/services received are not as described or promised.
  • When the authorization is declined.
  • When it is a fraudulent multiple transaction.
  • When there are point-of-sale errors.
  • When the charges are delayed.
  • When an invalid / incorrect card / account number is being used.
  • When the credit card has expired.

According to the CBUAE guidelines, a chargeback can only be initiated by a customer in the event of fraud, non-delivery or dispute over the quality of goods and services. The customer must first attempt to resolve their issue with the merchant, and only when this is unresolved can they initiate a chargeback.

Circumstances where the customer claim shall be considered as invalid:

  • Where the customer wants to return the shipment but wants to avoid/evade the shipping or handling fees.
  • Where the customer feels like the merchant's return process is inconvenient.
  • Where the customer has misunderstood the delivery date/time.
  • Where the customer wants a refund on the purchase but the timeline to make the return has already expired.

Guidelines for banks in UAE:

The CBUAE has issued regulations and guidelines for banks in the UAE on the issue of chargebacks. The regulations define chargeback as a request by a cardholder to a bank or financial institution to reverse a payment transaction.

The regulation places an obligation on banks to provide customers with a clear understanding of the chargeback process and the circumstances under which a chargeback can be initiated.

The guidelines clearly specify that the banks are required to ensure that chargebacks are only initiated in accordance with the rules and regulations set out by international payment schemes i.e., Visa and Mastercard. Banks are also required to notify merchants of any chargebacks and provide them with an opportunity to respond.

The guidelines further also specify that merchants have the right to dispute the chargeback by providing sufficient evidence to support their case. Banks are required to give due consideration to the merchant’s requests and evidence before deciding on the chargeback claim.

Furthermore, the regulations require banks to establish clear policies and procedures for handling chargebacks, including the timeframe for resolving disputes and the documentation required for a chargeback claim.

Failure to comply with CBUAE regulations can result in penalties and fines, as well as damage to a bank’s reputation. Therefore, it is essential for banks to ensure that their chargeback processes are in line with CBUAE guidelines to avoid legal and financial consequences.

By implementing these guidelines, the CBUAE aims to provide a fair and transparent process for handling chargebacks in the UAE and protect the rights of consumers and merchants.

What can you do as a merchant if the bank has initiated a chargeback?

If the bank decides to issue a chargeback, you can either accept the chargeback if there is any default on your end.

The CBUAE guidelines specifically states that merchants in UAE have the right to dispute the chargeback.

If you decide to contest the chargeback, a process called as “Representment” is made available through which you must submit solid evidence such as proof of purchase i.e., transaction receipt, any email or telephonic conversations, tracking information of the shipment or any photographs or screenshots proving that the customers claim is invalid, and the chargeback is illegitimate. In some cases, you are required to enclose a rebuttal letter along with the relevant evidentiary documents in compliance to the guidelines of the respective bank/card. You are required to submit the evidence within 7 working days.

Once your evidence has been submitted, the bank will verify the same and shall decline the chargeback if the relevant evidence is satisfactory and genuine; in case the bank finds that the chargeback/customers claim is valid, the chargeback amount is debited from your account, and the bank shall issue you a written notification.

However, it must be noted that in some cases, credit card disputes may be escalated to litigation. If you are sued by the customer or the issuing bank, it is recommended that you retain legal counsel to protect your rights.

To avoid such credit card disputes and potential litigation, as a merchant it is suggested to ensure credit card transactions are conducted in compliance with the applicable regulations and ensure a clear cancellation, return and refund policy which is stated/communicated to the customer at the time of the transaction. Furthermore, keeping your customers well informed about the status of their shipment (even in cases where a delay is anticipated), and implementing fraud prevention measures, promptly addressing customer complaints and suggestions are the simple measures which will help prevent any such potential disputes.

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