Return Item Chargeback: Explained For Beginners

I’ve known people who’ve dealt with return item chargebacks and found themselves confused by this fee. I’ll clear up this confusion for customers (and businesses) in this post.

First, I’ll explain whether and how they affect businesses. Then, I’ll explain what they are and how they’re different from, for example, overdrafts. Then, we’ll dive into additional information to help you understand the impacts of return item chargebacks.

Let’s learn what this type of fee is.

Key Takeaways

• Return item chargebacks don't financially impact merchants, but they can cause customer confusion that may indirectly lead to actual chargeback disputes.
• A return item chargeback is a fee a bank charges a customer when the bank can’t process a deposit due to insufficient funds in the check writer's account.
• Return item chargebacks are unrelated to purchased merchandise; they occur when a customer's bank charges them a fee due to a bounced check.
• Return item chargebacks typically range from $10 to $15.

Return Item Chargeback Impact on Merchants

Return item chargebacks don’t directly affect merchants despite the word “chargeback” mixed in with the name. Good news for merchants reading this guide, because you don’t need to read anymore. Unless you want to know how they work.

These chargebacks are a transaction between the customer and their bank. They result from a bounced check deposited by the customer, not a disputed purchase from a merchant.

Summary: Return item chargebacks don't financially impact merchants.

Return Item Chargeback Meaning

A return item chargeback is a fee a bank charges a customer. The fee (ranging from $10–$15) occurs when the customer deposits a check that’s later returned unpaid. This situation happens when the check writer's account lacks sufficient funds.

The bank will typically notify the customer within 1–2 business days of the check being returned.

If several checks bounce around the same time, your bank will likely charge a return item fee for each bounced check. This fee will compound. Monitor your account balance before writing checks.

Why do return item chargebacks exist?

Banks charge this fee—to customers—because they lose money when processing “bad checks.” This chargeback serves as a way to recoup their losses [1].

How’s that different from an overdraft and NSF (non-sufficient funds)? We’ll talk about that later.

Banks have different names for this type of fee, like:

• Chargeback check fee
• Rejected check fee
• Returned check fee
• Deposited item returned fee
• Cashed/deposited item returned unpaid fee

I’ll cover what banks use each term in a bit.

Still don’t get it? Let’s check out a real-world example:

John receives a check for $500 from his friend, Sarah, as payment for some freelance work he completed. He deposits the check into his bank account, and the funds become available. Meanwhile, Sarah unexpectedly has an overdraft on her account, leaving her insufficient funds to cover the check.

When John's bank attempts to process the check from Sarah's bank, it’s returned as unpaid. His bank notifies him of the bounced check and charges him a return item chargeback fee.

Summary: A return item chargeback is a fee banks charge customers when a deposited check cannot be processed due to insufficient funds in the check writer's account.

Return Item Chargeback vs. Returns

Return item chargebacks aren’t the same as regular returns.

A regular return happens when a customer brings back merchandise to a merchant. This process might occur because the item is defective, unwanted, or doesn't fit the customer's needs. The merchant typically refunds the customer's money or offers store credit.

If the merchant doesn’t return the item for an item that the customer finds unfair, and it falls under the grounds to initiate a chargeback (e.g., misleading product description), then that can lead to a chargeback.

Return item chargebacks are unrelated to purchased merchandise. They occur when a customer's bank charges them a fee due to a bounced check. This fee results from insufficient funds in the check writer's account.

Summary: Return item chargebacks involve bounced checks and bank fees, while regular returns concern the return of purchased goods to a merchant.

Reasons for Return Item Chargebacks

The primary reason for a return item chargeback is insufficient funds. This means the check writer's account lacks the money to cover the check amount.

Closed accounts are another reason why checks bounce. The account the check draws on may no longer exist.

Occasionally, issues occur that aren't the customer's fault. A bank may place a hold on funds, temporarily making them unavailable. Errors can sometimes occur within the banking system, leading to incorrect processing.

Summary: Return item chargebacks usually happen when the check writer doesn't have enough money in their account or if an issue arises with the account itself.

Return Item Chargeback vs. Non-sufficient Funds vs. Overdraft

None of these fees affect merchants.

Let’s start by defining the 3:

1. Overdraft: A bank will allow transactions exceeding the customer's available balance. This acts as a short-term loan, but with a cost. The bank covers the difference but charges a fee for this service.

Fees for overdrafts often fall in the same range as NSF fees. Between $25–$40 per occurrence. Some banks might charge slightly less for overdrafts than NSF situations.

2. Non-Sufficient Funds (NSF): Occurs when anyone attempts a payment (a check, electronic transfer, debit card purchase) for which they lack sufficient funds. The bank declined the transaction, essentially saying 'not enough money available.

NSF fees can vary between banks but range from $25 to $40 per incident.

3. Return Item Chargeback: This happens specifically when a deposited check is later returned unpaid. The bank where the check was deposited reverses the funds and charges the depositor a fee since the promised funds never materialized.

These fees range from $10–$15 (varies by bank).

Let’s say a customer didn’t have enough money in their bank account to cover a transaction. The bank may pay for the purchase and charge the customer for overdrawing their account. Or they may return the check and mark it as “non-sufficient funds.”

A returned item chargeback will happen when someone writes the customer a check and the check bounces. Incurring a fee on the customer.

Summary: NSF fees result from declined transactions. Overdraft fees arise when banks temporarily cover transactions exceeding account balances. Return item chargebacks occur due to bounced checks a customer deposits.

Return Item Chargeback vs. Regular Chargeback

A return item chargeback arises from a bounced check. When a customer deposits a check, and the check writer's bank lacks sufficient funds to cover the amount, the check bounces. The customer's bank then charges a return item fee.

A payment chargeback targets disputed credit or debit card transactions. If a customer believes a card transaction is unauthorized, fraudulent, or incorrect, they can initiate a chargeback with their issuing bank.

The parties involved in each process also differ.

A return item chargeback concerns the customer and their bank. The bank identifies the insufficient funds and slaps a fee on the customer's account.

A payment chargeback involves 3 parties: the customer, the merchant, and the customer's issuing bank. The customer disputes the transaction with their bank, who then contacts the merchant for a response.

Banks initiate return item chargebacks because of insufficient funds in the check writer's account. There's no dispute about the transaction itself, just a failed attempt to process the check due to lack of funds. 

Customers start payment chargebacks when they believe a transaction on their bank card statement is incorrect. They file a dispute with their bank, triggering the chargeback process.

With a return item chargeback, the customer incurs the penalty fee from their bank for the bounced check. 

The merchant isn't involved in this process.

With a successful chargeback dispute, the financial burden shifts to the merchant. The customer's bank retrieves the disputed funds from the merchant's account, potentially causing a loss of revenue. Additionally, merchants face fees from their payment processor for disputed transactions.

This type of “chargeback” also doesn’t involve a credit, debit, or prepaid card.

Summary: Return item chargebacks involve bounced checks and bank fees, while payment chargebacks concern disputed card transactions and potential losses for merchants.

What Chargebacks Do Affect Merchants?

Return item chargebacks impact customers and their banks, whereas specific types of chargebacks directly affect merchants.

Let's delve into the different categories that can cause financial woes for businesses:

1. Friendly Fraud: This occurs when a legitimate cardholder makes a purchase but later disputes the charge. This might happen if they forget about the purchase, don't recognize the merchant name on the statement, or claim someone else used their card with their permission (authorized fraud).

2. Fraudulent Chargebacks: These involve stolen credit card information used to make unauthorized purchases. The rightful cardholder disputes the transaction, and the merchant loses the funds.

3. Merchant Error: Customers may initiate chargebacks if they receive damaged or defective products, don't receive their order, or experience significant service problems.

Merchants are also liable for chargebacks if they make mistakes during processing. Such as accidentally charging the wrong amount or failing to follow proper authorization procedures.

Summary: Friendly fraud, fraudulent transactions, merchandise/service disputes, and processing errors are some key chargeback types that directly cause financial losses and potential headaches for merchants.

How Different Banks Define “Return Item Chargebacks”

Major banks will have different definitions and fee amounts for return item chargebacks. Let’s dive into those differences.

Bank of America labels this as a “Deposited Item Returned” fee and will charge $12 per instance [2]. They also have Returned Item Fee, which isn’t the same. In this scenario, it refers to Non-Sufficient Funds.

Many claim that Capital One labels a returned item chargeback as a Rejected Check fee. I couldn’t find anything on their website. However, the rejected check charge is $9.

Toronto-Dominion Bank (TD) Bank calls it a Deposited Item Returned and charges $20 per check [3].

US Bank calls it a “Return Deposited Item.” They’ll charge $16 for a returned check per item [4].

Other sources suggest that Wells Fargo labels their return item chargeback as a “Deposited Item Return Unpaid” and charges $12 per instance. I couldn’t find concrete evidence of this so take that information with a grain of salt.

These are the most popular banks. And I likely didn’t include yours.

Check your bank's website or fee schedule for information regarding their specific return item chargeback policies.

How to Prevent Return Item Chargebacks

As a customer, here's how to help prevent return item chargebacks:

• Monitor Your Bank Account: Check your balance to confirm you have sufficient funds. This awareness will help you avoid writing checks that will exceed your available balance.
• Use Alternative Payment Methods: If you're unsure of your balance, consider using payment methods tied directly to available funds. Debit cards and cash are examples of these types of payment methods.
• Communicate with Check Recipients: If you know a check will take time to clear, inform the recipient. This proactive step can help avoid premature deposits and potential bounced check issues.
• Act Quickly on Insufficient Funds: If you notice a potential issue, contact your bank immediately. They may offer solutions to help temporarily cover the check.

Summary: By carefully monitoring your account, choosing appropriate payment methods, communicating clearly, and acting swiftly to address issues, you can minimize the risk of incurring return item chargeback fees.

FAQs for Return Item Chargebacks

How Much Does a Return Item Chargeback Cost?

Return item chargeback fees will range from $10–$20 when using domestic checks (within the US). $15–$40 when using foreign checks.

Conclusion

Return item chargebacks are bank fees customers face for bounced checks, typically costing $10–$15.

While they don't directly impact businesses, they can cause customer confusion, potentially leading to disputes that do affect merchants.

Understanding the difference is key for consumers and businesses.

If you’re a business and are looking for a way to prevent chargebacks, learn how we can help.