American Express Chargeback Guide for Merchants

Explore this guide that simplifies American Express’s chargeback and dispute processes. Keep reading to find various time limits, reason codes, and other critical information.

Author

Theodore Sterling

Key Takeaways

Merchants have 20 days to respond to chargebacks.
Chargeback fees only apply to merchants who breach the 1% chargeback threshold.
Sellers undergo an “Inquiry” or an “Upfront Chargeback” process.
Inquiries are a request for information.
Upfront Chargebacks are an immediate chargeback with an opportunity for merchant representment.
Vendors can’t arbitrate chargebacks.
Card Members (cardholders) can’t dispute a single transaction twice.

How Do American Express Chargebacks Differ From Other Providers?

Similarities:

Time Frame: Cardholders have a limited time frame to dispute a charge, usually within 120 days of the transaction date.
Dispute Reasons: The main reasons for disputing a charge are similar across all card networks, including unauthorized use, billing errors, goods or services not received, and quality issues with merchandise.
Evidence Submission: Merchants need to provide evidence to support their case in response to a dispute.
Representment: Merchants can challenge chargebacks by submitting additional evidence through a process called representment.

Differences:

1. Inquiry Process vs. Upfront Chargeback: American Express may initiate an Inquiry to gather more information before issuing a Chargeback. However, they may also issue an Upfront Chargeback in some instances, debiting the merchant's account before a thorough investigation.

2. Terminology: They use the term "Inquiry" to refer to the initial stage of the dispute process, while other card providers may use terms like "retrieval request" or "request for information."

Amex also defines a "dispute" as a cardholder Inquiry about a charge and a “Chargeback” as a reversal. Meanwhile, other providers may use "dispute" and "chargeback" interchangeably.

3. Fees: American Express only levies fees onto merchants if they’re a part of the Partial Immediate or Immediate Chargeback programs — programs for merchants that exceed chargeback thresholds. Otherwise, sellers don’t have chargeback fees.

4. Arbitration and Second Chargebacks: Merchants can’t arbitrate a chargeback if Amex rules in favor of the Card Member. However, a cardholder can re-dispute a transaction — this situation would also be known as a “second chargeback.” They can only dispute a single transaction twice, though.

Summary: Most differences in American Express’s chargeback / dispute process comes from the inclusion of Inquiries, the lack of fees for most cases, terminology, and the lack of arbitration.

Dispute Center: It’s How You’ll Manage Chargebacks

The American Express Dispute Center is an online portal where merchants can manage and respond to chargebacks and inquiries.

It allows merchants to:

Receive email alerts for new inquiries, new chargebacks, case updates, and urgent cases.
View details, deadlines, and response options for multiple disputes in one place.
Respond to disputes online and upload supporting documents.
Track the status of each dispute throughout the process.
Customize views and reports to monitor disputes effectively.

You can access the Dispute Center by logging into your American Express merchant account. If you don’t have an online account, follow their instructions to create one.

To create a merchant account, you’ll need the following information:

Business ZIP Code
Merchant Account Number
Contact information
Business bank account information

From there, you’ll create a User ID and a password. Once that’s done, you must select “Disputes” as one of your Online Access Options. And you’re ready to manage disputes.

Summary: The Dispute Center allows you to manage disputes online.

Time Limits for Merchants & Cardholders

Respond to an Inquiry or Chargeback (Merchant): 20 days
File a Dispute (Customer): 120 days from the transaction date.some text
- The time to dispute the following categories and reason codes will vary:some text
  - C04: Goods / services not received
  - C05: Goods / services returned / canceled
  - CO8: Goods/Services Not Received or Only Partially Received
  - Re-disputes (second chargebacks)
Submit a Charge After Receiving Authorization (Merchant): 7 days.
Issue Credit / Refund (Merchant): 7 days

American Express doesn’t specify how long they’ll extend the time limits for re-disputes or the reason codes above. Thus, chargebacks from transactions that could result in these reason codes surfacing years later.

Amex’s Chargeback Process: How it Works

The dispute process could branch in one of 2 directions:

Screenshot from American Express.

1. Inquiry: Request for Information

1. A Cardholder Disputes a Charge: A cardholder contacts American Express to dispute a charge on their statement. This could be due to various reasons, such as unauthorized charges, dissatisfaction with goods or services, or billing errors.

2. Inquiry: American Express may attempt to resolve the dispute internally using the information they have on file.

If they need more information, they will send the merchant an inquiry or a Request for Information letter. This inquiry will outline the reason for the dispute and request supporting documentation from the merchant.

3. Review: American Express reviews the provided documentation and information after receiving the merchant's response to the inquiry.

Based on this review, they decide whether the dispute is resolved in the merchant's favor or if a chargeback is necessary.

The case is resolved if the merchant's response is deemed sufficient and no further action is taken. However, if the response is insufficient or the deadline is missed, American Express proceeds with a chargeback.

4. Chargeback: If the dispute cannot be resolved through the Inquiry or if an Upfront Chargeback is issued, American Express may process a chargeback. This means they will permanently debit the disputed amount from the merchant's account and credit it back to the cardholder.

2. Upfront Chargeback

American Express will place merchants in this process for the following reasons:

You’re in one of these programs:some text
- Fraud Full Recourse Program
- Immediate Chargeback Program
- Partial Chargeback Program
Amex believes the customer’s evidence is enough to support their claim.

Here’s the process if there’s no Inquiry involved:

1. Card Member Disputes a Charge: The process begins when a Card Member disputes a charge on their statement.

2. Upfront Chargeback: American Express debits the disputed amount from the merchant's account. They also send a notice to the merchant about this.

3. Chargeback Explained: The notice explains that the disputed amount has been debited from the merchant's account.

4. Submit Documents: American Express will request evidence from the merchant, such as a signed record of charge, cancellation policy, terms and conditions, or proof of cardholder consent.

5. Decision: American Express reviews the merchant's response and decides whether to reverse the chargeback or let it stand:

Chargeback Stands: If the merchant's reply is insufficient or they don't reply on time, the chargeback stands, and the disputed amount remains with the cardholder.
Reversal: American Express may reverse the chargeback, returning the disputed amount to the merchant's account.

Can American Express Reopen a Closed Dispute?

If a customer files a second chargeback, American Express can reopen a dispute that previously ended in your favor. Though, in most scenarios, their decision is final.

If there’s a re-dispute (aka second chargeback), merchants must submit additional evidence to support their charge’s validity. However, they do specify that Card Members can only dispute a single transaction twice [1].

American Express also specifies that if a Disputed Charge resulted in favor of the Card Member, merchants cannot re-submit (or arbitrate) the charge any further [2].

You Should Know About the Fraud Full Recourse Program

The Fraud Full Recourse Program is American Express’s reason code FR2 when Amex places the merchant in the Fraud Full Recourse Program.

They’ll place merchants in this program if they breach a threshold of fraudulent transactions. However, nowhere in any of their hundreds of pages of documentation does it say anything about how many fraudulent transactions you’d have to have.

However, they do specify that they’ll place you in this program if:

You’re in a “high-risk” industry.
You experience a “disproportionately high number of or amount of disputed charges or fraud relative to your prior history or industry standards” [3].
You are in a country where they operate their program.

My best advice is to reduce your fraudulent transactions, though that’s often easier said than done.

When in this program, Amex skips the Inquiry process and assumes that whenever the Card Member disputes a transaction as fraudulent, that the cardholder is correct.

Usually, merchants going through the Inquiry or Upfront Chargeback processes can submit Compelling Evidence — American Express’ label for photos, emails, signatures, and other evidence. However, when under the Recourse Program, merchants can’t submit Compelling Evidence for fraudulent claims.

Summary: Merchants enter the Fraud Full Recourse program when reaching an unspecified number of fraudulent transactions. When in this program, they can’t fight disputes regarding fraudulent transactions.

What’s American Express’s Chargeback Threshold?

Chargeback Threshold: 1% or higher for 3 consecutive months (as of 2020 [2]).

Once you pass the 1% threshold, American Express will place you (the merchant) in the Immediate or Partial Immediate Chargeback Programs. From there, no matter what type of chargeback happens, Amex will issue chargeback codes FR4 or FR6 for merchants in this program.

No matter which program you’re in, American Express will charge you a $25 chargeback fee per chargeback. However, they don’t charge review fees to reduce your chargeback rate. Nor do they specify whether they’ll revoke your ability to accept Amex cards if you’re in either program for long enough.

Think of it like Visa’s Dispute Monitoring Program. But with less severe consequences.

And once you reduce your monthly chargeback rates below this threshold, American Express will remove you from the program.

Here are the most important points:

Both programs are designed to expedite the dispute resolution process for cardholders.
Merchants enrolled in these programs have limited opportunities to defend themselves against chargebacks.
These programs can be financially risky for merchants, as they may be held liable for disputed charges without the chance to go through the Inquiry process.
Merchants may be able to avoid these programs by maintaining low dispute rates and adhering to American Express's best practices for chargeback prevention.

Let’s look more into these programs.

Immediate Chargeback Program

Reason Code: FR4

In this program, American Express automatically charges back disputed transactions to the merchant without initiating an Inquiry process.

This means that when a cardholder disputes a charge, American Express will immediately debit the merchant's account and credit the Card Member’s account. This program is typically applied to merchants with high dispute rates (>0.99%) or those operating in high-risk industries.

Partial Immediate Chargeback Program

Reason Code: FR6

This program is similar to the Immediate Chargeback Program, but it only applies to disputed transactions below a certain threshold (e.g., $20, $25, $50, $100, or $250).

For disputes below this threshold, American Express will automatically charge back the amount to the merchant without an Inquiry. Disputes exceeding the threshold (>0.99%) may follow the standard dispute process with an Inquiry.

Typical Reason & Inquiry Codes

American Express uses one of 2 types of codes:

Reason codes: When Amex decides to apply a chargeback to a merchant.
Inquiry codes: Amex requests more information from a merchant.

I’ll only provide the codes and their titles in this guide. It would require too many words to describe each code in detail in this piece.

1. Card Member (Cardholder) Dispute

2. Fraud

‍

3. Processing Errors

‍

4. Authorization

5. Chargeback & Fraud Programs

6. Other Codes

‍

Amex Inquiry Codes

American Express uses these codes when they need more information from a merchant to resolve a dispute:

All these codes have varying causes, steps that you’ll need to take, and preventative measures. We’ll talk about these in a separate guide.

What is an American Express Chargeback? Is it Different?

Time it Takes for a Dispute (On Average): 6 – 8 weeks
Chargeback Fee: $0; unless you pass their chargeback threshold, then it’s $25 per chargeback.

Amex has different definitions for chargebacks and disputes. They say disputes occur when a customer disagrees with a charge and contacts American Express. Then a chargeback is the debited amount for the disputed charge [4].

Let’s say for instance, that a Card Member’s child uses a parent’s credit card (without the parent’s knowledge) to buy a microtransaction for a mobile game for $9.98. The Card Member then tells American Express that they didn’t authorize the transaction.

Suppose the dispute isn’t resolved, and the business refuses to refund the customer. In that case, the merchant will temporarily credit the customer for the transaction amount ($9.98 in this case), which is the chargeback.

Whether the chargeback stands, and the transaction reversal goes through, depends on whether the business “wins” the dispute. If the business loses, it will pay the chargeback ($9.98) and possibly a chargeback fee.

Most payment processors, institutions, and card networks use dispute and chargeback interchangeably.

Summary: A dispute is the process of fighting an alleged illegitimate transaction. A chargeback is the forced reversal of funds from the merchant.

Isn’t This a Refund?

A refund isn’t forced. A customer contacts the merchant to request their money back, and the seller processes the refund.

A chargeback is a forced transaction reversal. The card issuer reverses a transaction without the merchant's consent. This happens when a customer disputes a charge. The issuer investigates the dispute and decides in the customer's favor.

Summary: A refund is voluntary and initiated by the merchant, while a chargeback is involuntary and initiated by the card issuer.

Is American Express Fair to With Merchants with Chargebacks?

American Express’s Inquiry is extremely fair to the merchant and customer. It gives the merchant a chance to present evidence and fight the transaction BEFORE a chargeback.

Many inquirers will immediately give merchants chargebacks.

Amex also doesn’t have chargeback fees unless you exceed their threshold, which can save merchants a lot of money in fees. Moreover, customers can only dispute a single transaction twice. Thus, you won’t need to worry about having 2 chargebacks.

More good news is that less than 0.035% of Amex Card Member transactions resulted in disputes (in 2023) [1]..

My Tips to Fight & Win Amex Disputes

The following is a list of our tips to fight and win American Express disputes as a merchant:

Respond Quickly: Merchants have 20 days to respond to an Inquiry or chargeback with evidence.
Submit Documents: They should include a charge or credit record copy. Review the entire claim and address the reason for the specific dispute with the documents sent.
Provide Explanation: Address the specific dispute reason, provide any changes made to the original purchase / agreement, and explain the steps taken to resolve the dispute.
Write a Strong Rebuttal Letter: Explain why the chargeback is invalid and reference any supporting documentation. Be professional and concise in your communication.
Understand Chargeback Reason Codes: Familiarize yourself with the specific reason codes for chargebacks. This will help you tailor your response.
Seek Professional Help: If you're dealing with a complex or high-value dispute, consider seeking help from a chargeback specialist or legal professional.

There’s not much you can do if the dispute has already occurred and you have not been able to resolve the issue with your customer.

Do Merchants Usually Fight Chargebacks?

You (the merchant) should only fight chargebacks if you know you have the evidence to prove the transaction was legitimate. Your odds for winning chargebacks among all industries is 30% [5].

However, the odds of winning a chargeback will vary by chargeback type, product category, and price point.

When fighting friendly fraud (or first-party fraud), your odds skyrocket to 43.82% [6].

If you’re dealing with third-party fraud (aka true fraud), don’t bother fighting it. Because merchants only have a 9.27% chance of winning. Many folks will say not to fight merchant error chargebacks either. And I agree with that, if you believe the customer could prove there was truly a merchant error.

Ways to Prevent American Express Chargebacks

Here are some ways you can prevent chargebacks from Amex:

1. Clear Billing Statement Details: Make sure cardholders can recognize your charges. Ensure your business name as it appears on cardholder statements is accurate and familiar to your customers.

Have your customer service phone number also appear on the cardholder’s statement in case the Card Member has any questions about the charge.

2. Fraud Prevention: Check for ID during all face-to-face transactions, obtain a valid authorization code, and obtain an imprint for keyed transactions or key Credit Card Identification Code (CID). A CID is American Express’s version of a CVV or CVC code.

3. Keep Records: Ensure you keep all records of sales and charges so any disputes can be more easily resolved.

4. For Hotels: Always record full details of the card and reservation, always give the cardholder a cancellation number, and keep a record of the booking, a copy of your cancellation policy for the specific case, and the cancellation number.

5. For Restaurants: Record full details of the card and reservation when guests make a reservation.

6. Mail Order or Internet Merchants: Make sure the cardholder knows how long it takes for delivery, collect signed proof of delivery where possible. Also use the strongest available fraud tools when processing transactions.

7. Car Rental Merchants: Explain to the cardholder the policy for extra costs at the time of rental, ask the cardholder to sign documents acknowledging they are responsible for the vehicle, and agree on the final amount when the cardholder returns the vehicle.

8. Monitor Chargeback Ratios: Keep track of your chargeback ratios to identify any patterns or issues that may be contributing to disputes. Address these issues to prevent future chargebacks.

Now I’ll talk about a bunch of tools that American Express offers that’ll help merchants reduce and prevent disputes and chargebacks.

1. SafeKey

SafeKey is a fraud prevention tool that uses 3D Secure technology to authenticate online transactions. A customer would enter their card details, and then the technology evaluates information like:

Cardholder’s information
Login credentials
Location
Transaction history

If the technology labels the Card Member’s transaction as fraudulent, they’ll lock the card’s access behind a passcode that Amex will send to the user via SMS or email.

3D Secure (in general) adds an extra layer of security to online purchases by requiring cardholders to verify their identity through a password, one-time code, or biometric authentication.

This helps reduce the risk of fraud, as it makes it more difficult for unauthorized users to make purchases with stolen card information.

2. Enhanced Authorization

Enhanced Authorization is a fraud prevention tool offered by American Express that helps merchants verify the legitimacy of online transactions.

It works by analyzing various data points associated with a transaction, such as the cardholder's:

Billing and shipping address
Purchase history
Device information

By assessing these factors, Enhanced Authorization can assign a risk score to the transaction, indicating the likelihood of it being fraudulent.

Merchants can use this risk score to determine whether to approve or decline a transaction.

By declining high-risk transactions, businesses can reduce the risk of fraud and subsequent chargebacks. Additionally, Enhanced Authorization can help improve the customer experience by reducing the need for manual reviews and speeding up the checkout process for legitimate transactions.

You’d work with your gateway processor to get access to Enhanced Authorization’s API information.

3. American Express Token Service

American Express Token Service is a security solution that replaces cardholder data, such as the card number, with a unique digital identifier. This is a token.

The customer can then use it for processing payments without exposing the actual card details, reducing the risk of fraud and data breaches.

It’ll help businesses in preventing or reducing chargebacks in several ways:

Fraud Reduction: Tokens are useless to fraudsters if stolen, as they cannot be used to make purchases elsewhere.
Improved Authorization Rates: Since the token remains valid even if the card is replaced or updated, businesses can continue processing payments without interruptionsome text
- Reducing the chances of declined transactions and potential chargebacks.
Seamless Customer Experience: Tokenization allows for a smoother and more secure checkout experience for customers, as they don't need to re-enter their card details for every purchase.

Overall, it provides a secure and efficient way for businesses to protect sensitive cardholder data, reduce fraud, and minimize chargebacks.

To add this tool to your business, visit their token service overview page for more information.

4. Verify-It

Verify-It is an online portal provided by American Express that allows merchants to verify their customers' billing information, including their name, billing address, and phone number.

It helps reduce chargebacks in a couple of ways:

By verifying the customer's billing information, merchants can ensure that the person making the purchase is the legitimate cardholder.
Sometimes, customers dispute charges because they don't recognize the merchant's name on their statement.some text
- Verify-It helps reduce this type of "friendly fraud" by ensuring that the billing information is accurate and recognizable to the customer.

Merchants can sign up for Verify-It by visiting Amex’s web portal and entering their American Express Merchant Number.

5. Digital Receipts

American Express (in partnership with Ethoca) offers Digital Receipts, a service in which American Express sends the customer a copy of a Digital Receipt for their transaction. This receipt contains “enhanced” transaction details.

American Express doesn’t explain what “enhanced” details are…

They do specify that merchants had 15 – 20% fewer non-fraud disputes when implementing these over a several-month period in 2021 [7].

6. Other Tools

American Express did offer Accertify. However, in 2024, Accel-KKR will acquire the software from Amex [8].

Then there are Substitute Receipts. Amex will give the customers an itemized list of receipts without needing the merchant. This helped resolve 90.4% of disputes from “does not recognize” transactions.

Businesses that Can’t Accept American Express

American Express doesn’t allow merchants in the following industries to accept Amex cards [9]:

Bankruptcy services
Check cashing / guarantee
Credit restoration
Payday lending
Wire transfers in-person (MCC 4829)

Why mention these at all?

Because American Express specifies they’ll place you in the Fraud Full Recourse Program if they deem you a “high-risk industry.” Thus, these COULD potentially land you in such a program.

There are also restricted industries. You’re allowed to accept American Express cards within these categories, but you must have written permission from Amex.

Here are the different industries:

Conclusion

American Express is fairly lenient on merchants regarding chargebacks and disputes with their Inquiry program and cap on the number of times customers can file a chargeback on the same transaction. However, you’ll need to be vigilant in preventing chargebacks from other card networks.

We partnered with Ethoca (Mastercard), RDR (Visa), and CDRN to deliver alerts to merchants to prevent disputes / chargebacks from happening. Learn more about how we can help.

Sources

[1] American Express: Dispute management guide
[2] American Express: Merchant reference guide
[3] American Express: International regulations
[4] American Express: Disputes and chargebacks
[5] Midigator: Chargeback report
[6] Charge Flow: Chargeback report
[7] American Express: Dispute education center
[8] Accertify: Accel KKR acquires Accertify
[9] American Express: Merchant regulations
[10] American Express: Lending options