How chargebacks protect you from airline bankruptcy and how to request them

How chargebacks protect you from airline bankruptcy and how to request them

Airlines seemingly go into bankruptcy or insolvency at any time, really, but with COVID-19 changing so much of what we can expect out of airlines or travel agencies (like when Virgin Atlantic unexpected made its bankruptcy announcement in the US), one of the frequent questions we get at JFC is what happens to your airfare should the company go bust.

Fortunately, one of the best-kept secrets of purchasing airfare on your debit card (or credit card especially) is that many purchases have built-in protections for these cases. Many of our members are not aware they are eligible to either request a chargeback or make a section 75 request (more details on that later) in order to receive a refund for services, or are simply confused about how it all works. We’ve taken the time to outline what this banking jargon means, in case you find yourself dealing with either a company that has gone under or your rebooking or cancellation options have not been honoured under your Air Passenger Rights (check those out here for our US readers or here for our EU/UK readers).

Now you’ll know what to do if something goes wrong with your flight.

All about chargebacks

A chargeback is a consumer protection that all banks offer. Its purpose is primarily to protect consumers from fraud by dodgy merchants and gives consumers a route to claiming their funds back through a neutral third party (your bank). Unlike Section 75 claims, which you can make using a credit card and which we’ll get into more detail later, there aren’t as strong legal protections for chargebacks. This is why we recommend paying using a credit card - when the bank is paying, they’ll go much farther to recover funds, who would have guessed?

Essentially, a chargeback is just a reversal of a charge by your bank for the purchase you made. Once started, your bank immediately reverses the charge you have disputed, then your bank and the company who charged you basically start arguing about whether the charge is justified or not. Depending on the complexity of the case, that discussion can be over in a few days (or take much longer!). In the end, you will either keep the reimbursed funds and the merchant receives a fine, or the funds are taken again from your account if the bank decides the charge was valid. Don’t worry, you’re not charged for this reversal if the chargeback was made in good faith.

In most cases, any chargeback request related to an airfare ticket will be based around the service purchased not being provided, not being as described or for not being of good quality. If you’re not sure exactly which category you fall in, the bank representatives can help you file the claim under the right category. 

Who can use a chargeback:

You can use this option if your charge is through a debit or credit card, in most cases even after the card has been closed, but you still have an account at the servicing bank. You can request a chargeback on a charge of any amount, unlike section 75 claims which need to be over £100. This process does have a time limit, generally 120 days from when the purchase occurs, but to cover events and things like hotel stays and plane tickets, banks will consider the date of the scheduled service as the start of the 120 days. You also must have paid the entire amount on that one card - if you’ve made a downpayment on a service (like a package holiday) and paid off the rest of the balance by another means, the rest will not be covered.

How to start a chargeback:

If you think you’re eligible for a chargeback claim, you can start a chargeback by calling your bank, their number is usually on the back of your bank card. Their customer service people will know what to do once you mention chargeback or section 75. Many banks also have online forms to fill in and begin the process, which is even easier for most. Once you start the claim, here’s what will happen:

  • Your bank will document your request, gathering all the information they need to process the claim from you, and then submit it to their chargeback department to approve and process. It’s not unusual for banks to take a couple of days to do this and they may reach out to request more information from you.
  • The chargeback department will likely make an immediate reversal from the merchants account for the full amount paid and will either return the amount into your account or put a hold on the funds until the process is completed. The bank informs the merchant that this charge has been disputed, and gives them a time frame to appeal the chargeback.
  • Once the merchant has submitted their evidence or the time to dispute the chargeback has passed, the bank will review the chargeback again and any evidence submitted saying the charge was valid.
  • If the bank agrees that the merchant has not fulfilled their end of the contract, the funds are returned to your account and cannot be re-debited. If the bank decides the merchant did provide you the service or goods sold as described, the charged amount plus the penalty fee the bank charged them is returned to the merchant and you cannot dispute the charge again.

This whole process can take up to 90 days to complete or more, so be prepared for a wait before the case is resolved and the funds are back for good.

How is a Section 75 request different?

While it’s called Section 75 in the UK, similar protection also exists in the US called The Fair Credit Billing Act (FCBA) as well as for other countries under other names. In a nutshell, these are legally enforceable protections exclusively for charges made using a credit card and it outlines the process consumers can follow to get their money back from merchants when the service is not delivered. There are some requirement differences between the two, but the overall protections are similar.

Who can request a Section 75, or use the FCBA: 

While most requirements are the same as with any chargebacks, the main difference between them can be broken down depending on which laws you’re covered under:

For the Fair Credit Billing Act:

  • If it is within 60 days of your credit card bill and the amount is over $50. If it is due to the service not being delivered, it must be within 60 days of the service date according to some credit card companies, but this varies depending on their interpretation (only 60 days from the billing date is covered under FTC guidelines)
  • If it’s not due to fraud, you must be able to provide written notice of dispute on the charge. Most banks now have an online portal to handle requests to allow for this.
  • You must have made an effort to get in touch with the merchant to resolve the dispute yourselves

For Section 75 claims:

  • Your purchase must be between £100 and £30,000 and only part of the charge needs to be on the credit card, some of the charges can be split among other payment sources (only the total amount of the purchase must be more than £100, even if you only paid £50 on your card)
  • You must have paid using a credit card, not a debit or cheque card
  • If you use a 3rd party payment processor, such as Stripe or Paypal, you are not covered under Section 75 as the charge must be directly processed by the merchant

How to make a request under Section 75 or through the FCBA:

Outside of the above differences, the process of the actual disputed funds is exactly the same, so you’ll only need to contact your credit card issuer to get the ball rolling. Just make sure you’re staying within the guidelines of the above laws. If you’re not covered under either of these then generally you’ll still be able to request a chargeback, so all is not lost :)

When should you consider these options?

Travel restrictions due to COVID-19 have changed the game for airlines and the possibility your flights are going to end up cancelled suddenly seems much more real. Whereas previously, airlines or travel agencies going out of business were somewhat rare and often hinted at in the press in the leading months, no airline seems totally safe from the possibility of going bust. You should always consider your chargeback rights if:

  • You have booked a trip with either an OTA (online travel agency) or airline that has not honoured the T&C and you’ve tried and failed to reach out to your booking company
  • The company or airline you’ve booked with has filed for bankruptcy or insolvency 
  • You have tried to receive the refund that you are due according to your EU Air Passenger Rights or the US Consumer Rights (more on that in the linked articles above) and the company is refusing to cooperate

What can lead to an unsuccessful chargeback:

  • You haven’t contacted the company the purchase was made through, or you have not waited for a suitable time for the company to answer. This suitable time to wait can vary based on the circumstances, but in the current situation when companies are overwhelmed with requests for a response, a good ballpark is at least a month
  • The company has offered an alternative that is outlined under the consumer protection laws, but you want an option not provided under those rules
  • The company has provided a partial refund or alternative booking, minus an administration or restocking fee outlined in their T&C’s

The common theme for considering chargeback options is that you have already attempted to work out a solution with the company, or at least tried to communicate with them, without receiving the solution you are guaranteed according to your rights. You’d be surprised how flexible many companies can be when you reach out first, so these options should always be your last resort. Plus, banks will request proof you’ve reached out to the company first, so always try to save a paper trail of your communication (emails are great, but if you reach out via phone always jot down who you talked to, when, and what they said).

The best thing about chargebacks is that you can always request one as long as it has merit and the worst outcome is that the bank declines to pursue it or you lose the claim - however, once a chargeback is initiated, around 78% of those are found in favour of the consumer. While specific rules and language around chargebacks can change based on your country, most countries have similar laws in place (especially the US, Canada, the UK & Ireland, and the EU). 

Both airline companies and online travel agents are feeling the stress of responding to and helping the many people dealing with cancelled flights, so this information is especially timely in 2020. Should you find yourself unable to come to an agreement with the company you purchased your holidays from, or your holiday company goes bankrupt or into insolvency, chargebacks are a handy trick to keep in your back pocket when you’re not making headway with a travel agent or airline customer service.

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