If you have a credit card, and you don’t know ‘Reason Code 30’ and the 540-day rule, you’re probably losing money. Here’s why.

I’ve been fighting for consumer rights and writing about credit card fraud for a loooong time, and I’d never heard of this.  In fact, lots of people in the banking industry have never heard of this. *Not* knowing this has probably cost us both some money through the years, so it’s worth a few minutes of your time to read on.

The short version: Consumers who pay for things with credit or debit cards, but never get those things, have a lot longer time frame to dispute those charges than they probably realize.

Say you order furniture, or some coffee online, or….you pre-order a gadget under development, and you wait a year, but the stuff never arrives.  You’re out of luck, the bank says, because the order was placed more than 120 days ago — the period when dispute rights expire.

Wrong.

At least with any purchase conducted over the Visa network, consumers actually have 540 days from date of purchase to file a dispute in some situations. Specifically, it’s 120 days after the consumer becomes aware that the product or service is never coming, not to exceed 540 total days from transaction.

Even if your bank tells you otherwise, your bank is wrong. Trust me.

Something very similar is probably true for MasterCard, though that firm hasn’t confirmed this to me yet. Rules appear to be different at Discover and American Express. I’m still “efforting” an explanation from them.

How did I learn this? Well, it wasn’t easy. But I had an insider as a guardian angel, as reporters often do, and that made all the difference.   Hopefully, she and I will help save you some money soon.

It all started because last year I wrote a story for MagnifyMoney.com on this new crop of all-in-one credit card gadgets that began to generate excitement back in 2013.  Firms with names like Coin and Plastc promised credit-card-sized digital gadgets onto which all your cards could be loaded.  Thanks to technology that lets the gadgets change their magnetic stripes on the fly, Coin and Plastc promised you could leave all your old-fashioned credit cards at home and just carry around their single piece of plastic.

Last fall, I wrote that takedown of the technology, explaining the 43 reasons it was unlikely to succeed.

A few days ago, Plastc announced it was going out of business, and the alleged 88,000 people who preorderd the Plastc gadget were out of luck. Naturally, many consumers ran to their banks to dispute the charge.  Some ordered the thing back in 2015. Some had ordered it just a few months ago.  All of them seemed to be getting different responses.

So I started reading up and making phone calls. Just how long is the “statute of limitations” on credit/debt card disputes?  The answers I heard were all over the map.  I heard 120 days. I heard 60 days.  I heard “It’s different at each bank.”  I heard …everything and nothing.

Then I found out about “Reason Code 30,” and the 540 day rule.  Here it is, in black and white, from a document on Visa’s website called “Visa Core Rules and Visa Product and Service Rules. (pdf)”

A Chargeback must be processed no later than either:

● 120 calendar days from the Transaction Processing Date

● If the merchandise or services were to be provided after the Transaction Processing Date, 120 calendar days from the last date that the Cardholder expected to receive the merchandise or services or the date that the Cardholder was first made aware that the merchandise or services would not be provided, not to exceed 540 calendar days from the Transaction Processing Date

In other words, there is a 120-day clock, but it doesn’t start when the transaction occurs; it starts when consumers learn the transaction will not be completed — with an overall time limit of 540 days.  For Plastc consumers, that meant anyone who ordered as far back as November 2015 still had the right to dispute. (Read my follow-up at MagnifyMoney.com on how to get refunds.)

Because so many consumers reported on places like Reddit and Facebook that they were being told otherwise, I called Visa.  Fortunately, Sandra Chu, who I’ve known for a long time, didn’t think I was crazy when I mentioned 540 days.  She hunted down the right person and confirmed for me that my interpretation of the rule is correct. Every bank that uses Visa to process transactions has to follow the Visa Product and Service Rules, including the 540-day rule.

Chalk one up for consumers! So if you’ve been stiffed on a purchase in the past year and four months, but haven’t gotten a refund from your credit card issuer, call them now!

Notice, I said “credit card issuer.”  You’ll still have to work through that bank, and it’s very possible operators there might not know about Reason Code 30. So when you call, have a link to the Visa rules handy.

As for Mastercard, Disover, and Amex, here’s what I know so far.

Mastercard’s “Chargeback Guide” puts it this way:

Sure sounds like you have 120 days from the cancellation of a purchase. The 540 bit appears to apply only to “interruption of ongoing services.”  Would a Plastc situation qualify?  It could. So far, Mastercard has clarified this for me.

I couldn’t find a public guide for American Express or Discover.  One Amex customer I spoke to said he was told the time limit is one year.  After that, it seems Amex makes decisions on a case-by-case basis. I’m waiting for clarity from Amex. Discover still hasn’t responded to my queries.

Plastc has been a good test case. I’ve seen consumers with every kind of card getting every kind of response. That means you should always *try* to dispute a charge in this situation. Some banks will give you a good-will refund, even if you are beyond the rights and rules.

HOW DO CHARGEBACKS WORK, ANYWAY?

Now, what is really going on when you file a dispute with your bank?  Move on if you don’t care about the back-office reality of the chargeback world.  I’d argue that it helps to understand what’s really going on in order to politely but firmly ask for your money, so here goes.

If a bank gives you your money back, you must wonder, who is left holding the bag? Somebody has to pay.  Well, that’s not as easy a question to answer as you might think.

The bank that gives you your plastic in this case is known as the “issuing bank.” So, initially, the issuing bank is out the money.  It then goes through a few intermediaries and ultimately lands at the “acquiring bank” — the bank that acquired the initial transaction and gave the money to the merchant — and asks for its money back.  That bank then goes to the merchant and completes what’s called a “chargeback.”  It dips into the merchant’s credit card processing account and sucks out money to cover the disputed transaction, plus a fee.  As you might guess, merchants hate this. And they really hate when transactions that are months old (or even 540 days old!) come back to haunt them.  For a small merchant, a few chargebacks can ruin an entire month.  Surely, that’s one reason the 540-day rule isn’t more well-known.

That explanation above creates almost as many questions as it answers, however. What if the consumer is lying?  What if the merchant has no money?  Well, the dispute process is full of…disputes. Sometimes, the issuing bank eats the loss to keep consumers happy.  Other times, the blame is pinned on the transaction network that moved the money between banks.  If there’s no money to take back from the merchant, insurance covers the loss.

Banks of course have a lot of experience mitigating risk, so with “risky” merchants like Plastc, they set aside money (a holdback) to cover potential future dispute losses. I’m told this holdback can be as high as 20 percent in extreme cases. So, even when a firm vaporizes, there is still a pool of cash to dole out refunds.  Naturally, the pool is never large enough however. That’s why it’s so critical that you act fast in situations like this. Don’t wait 539 days! Consumers who ask first usually have an easier time.

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