RE: Ripped Off By A Fellow Hobbyist.
Its not simple but here is the jist of what happens with a charge back.
chargeback mechanism exists primarily for consumer protection. Holders of credit cards issued in the United States are afforded reversal rights by Regulation Z of the Truth in Lending Act. United States debit card holders are guaranteed reversal rights by Regulation E of the Electronic Fund Transfer Act. Similar rights extend globally, pursuant to the rules established by the corresponding card association or bank network.
A consumer may initiate a chargeback by contacting their issuing bank, and filing a substantiated complaint regarding one or more debit items on their statement. The threat of forced reversal of funds provides merchants with an incentive to provide quality products, helpful customer service, and timely refunds as appropriate. Chargebacks also provide a means for reversal of unauthorized transfers due to identity theft. Chargebacks can also occur as a result of friendly fraud, where the transaction was authorized by the consumer but the consumer later attempts to fraudulently reverse the charges. Card association chargeback rules (e.g., MasterCard) are available online for public inspection and review. They comprise a well developed, well crafted and efficient system for adjudicating transaction disputes between cardholders and merchants,[1] primarily where the issues can be resolved based on documentary evidence incident to the transaction. The rules provide for arbitration of issues by the card association. This may occur where the card issuer generates a second (or "arbitration") chargeback against the merchant, after receiving the merchant's response to the initial chargeback. Normally this would require the cardholder to rebut elements of the merchant's response. The second chargeback results in a second crediting of the cardholder's account for the disputed funds, after having been credited back to the merchant with its response to the initial chargeback. The merchant's only recourse after the second chargeback is to initiate arbitration of the dispute by the card association. The fee for this is in the order of $250, and the arbitration loser is then obligated to pay the costs of the arbitration.
For transactions where the original invoice was signed by the consumer, the merchant may dispute a chargeback with the assistance of the merchant's acquiring bank. The acquirer and issuer mediate in the dispute process, following rules set forth by the corresponding bank network or card association. If the acquirer prevails in the dispute, the funds are returned to the acquirer, and then to the merchant. Only 21% of chargebacks lodged globally are decided in favour of the merchant.
The merchant's acquiring bank accepts the risk that the merchant will remain solvent over time, and thus has an incentive to take a keen interest in the merchant's products and business practices. Reducing consumer chargebacks is crucial to this endeavor. To encourage compliance, acquirers may charge merchants a penalty for each chargeback received. Payment service providers, such as PayPal, have a similar policy.[3] PayPal Merchant charges $20 for each chargeback (regardless of whether or not it is the first) plus it will retain the original transaction fee.[4]
In addition, Visa and MasterCard may levy severe fines against acquiring banks that retain merchants with high chargeback frequency. Acquirers typically pass such fines directly to the merchant. Merchants whose ratios stray too far out of compliance may trigger card association fines of $100 or more per chargeback.
If I were doing six figures a month in internet buisness I would certainly look into this.
Chargeback insurance refers to insurance coverage protects merchants who accepts credit cards. The coverage protects the merchant against fraud in a transaction where the use of the credit card was unauthorized, and covers claims arising out of the merchant’s liability to the service bank.
This coverage can apply under a number of circumstances, including:
•A credit card is lost or stolen and used before the cardholder can report it
•Credit Card Number Generators or Counterfeit Plastic Cards
•Post-purchase "ship to" information changes
•Signature mismatch or signature not on file.
Merchants are reimbursed for:
•The cost of a stolen product or service
•The loss of profit
A typical chargeback insurance policy will only cover losses on credit card transactions purchased through its own specific credit card processor or payment gateway.