How to handle contested credit card charges by customers

How to handle contested credit card charges by customers

By Admin June 16, 2021    Category: Business Law     Tags: business law business planning chase law group chase law manhattan beach client agreements credit card authorization language credit card dispute credit card fraud false fraud claims los angeles business attorney service agreements

How to handle contested credit card charges by customers

As business owners, sometimes there are clients out there who may try to get out of paying you by contesting a charge for your products or services on their credit card, claiming it as “fraud” to their card issuer or bank. It’s frustrating to think that a customer would go to this extent to not pay you, but it does happen in business. Here’s what you should know and how best to handle a situation like this.

Credit card companies don’t control your contract

Regardless of what the credit card company does with the charge, whether they credit the customer’s card back or not, that doesn’t mean the client is not responsible to pay you for the amounts that are payable under your contract. Your contract is your best defense and why it’s so important to have written agreements with all of your clients that includes very clear language on how to handle disputes.

Small Claims Process

In cases dealing with smaller amounts, the business can take the dispute to small claims court. Generally speaking, small claims court is a very streamlined process where you can simply go to your county’s website to complete the small claims forms.

For a nominal fee, the small claims court will serve the party for you and set a court date. Then, the small claims cases are typically heard by a commissioner. They usually make a decision quickly and if you win your case, you’re entitled to getting amounts owed to you plus damages. For example, if the client owes you $1,000, a small claims court could order you to receive that amount plus court costs such as the cost to file the complaint and service costs. 

To make a small claims case, you’ll need to make a written demand for the payment. This means that you need to send a letter to the client stating that, under the terms of your contract, they owe you the amounts due which needs to be paid within, say 10 days, or your business will seek further legal remedies. If the client doesn’t pay after sending this letter, then the business owner can complete the small claims complaint process. 

Written Demand

Business owners can send their own written demand on their letterhead and can include the fact that there is a record of the client contesting the charge and claiming fraud, despite the fact that both parties agreed to the services, and the client authorized the business to charge the credit card or account. If you’re going to send a letter to make a demand for amounts owed, you should be very clear in your language stating that you have a contract with the party and they owe you the full amount of the contract for services or products provided. You should also specify that the party has claimed fraud with their credit card company and this is a false and untrue statement because the party had full knowledge and gave the business express authorization to charge their card for this purpose. In closing, the business needs to state that due to these circumstances, the business is therefore demanding a certain amount to be paid within a certain number of days, and if the party does not pay, then the business will seek all further legal remedies. It’s imperative that the business owner specifically states at the end of the notice that this is an attempt to reach an amicable resolution of the dispute and all rights and remedies are reserved.

 All rights and remedies are reserved

Why is this clause important in your demand letters? Oftentimes, before lawyers get involved, the business may presume that if it sends a letter, the matter will resolve itself. But as communications and email go back and forth between parties, statements may be made by the parties and unfortunately, if the dispute is not resolved and attorneys do get involved, then what is said in an email can now be used against them. For example, if you don’t include the rights and remedies clause in your communication, you may send the client an email stating they owe you fees for the specific service or product you provided. Then, when you come back later claiming you’re owed additional amounts, this could hurt your position in being able to get any court costs or attorneys’ fees. Under the evidence code, by including “this is an attempt to reach an amicable resolution of the dispute and all rights and remedies are reserved,” statements in your communications cannot be used against you if the facts change later on.

Levels of litigation

In every dispute, each party has its own perspective; there’s what the client saw/felt, what the business saw/felt, and what actually happened. The party or client claiming fraud may come back with some reason why they feel they don’t owe you. You as the business owner claim the party signed your contract and you performed services, and they agreed to pay this amount. The party then recognizes they signed your contract but now alleges that you didn’t perform the services the way they expected or something else came up as a reason not to pay the business — and here you have a true dispute.

In some cases, you may consider other levels of litigation that can be more expedited. Small amounts can usually be resolved quickly in small claims court but keep in mind that in small claims disputes, you cannot have attorneys present. You will need to write the demand letter, file the small claims action, the court sets a date, and you appear prepared. When you appear in small claims court, bring a copy of the contract and any correspondence, or anything that shows that you performed the services, and that the party participated. 

If you have an action that is less than $25,000, you can go to limited jurisdiction which allows for each party to have their own attorneys. It really depends on the circumstances and what you’re willing to pay or how much your demand is worth. It’s best to speak with a qualified business attorney to determine the best and most effective process for your circumstances to decide whether to move forward with actually filing a lawsuit. 

Attorney’s Fees Provision

We always advise clients to have an attorney’s fees provision in their contracts which says that in the event of a dispute, if the party has to hire a lawyer to enforce the contract, and if they win, they’re entitled to the amounts owed, plus their attorney’s fees. If your contract has an attorney’s fees provision in it, you may also be able to make a claim for attorney’s fees even in small claims.

Another compelling reason to include the attorney’s fees provision is that it’s a deterrent on both sides from pursuing frivolous litigation. It’s an incentive for the party to pay fees owed and a disincentive for them to have to hire a lawyer. On the other hand, if your contract doesn’t have a written attorney’s fees provision, you won’t get your attorney’s fees back and it will be hard to get a lawyer to take your case without this provision, since you will need to pay the attorney out of pocket for their fees if it’s not able to be included in the settlement or judgment. This is your business decision to see what level of litigation is worth pursuing if you don’t have this provision. In any case, be sure that your contracts are clear about attorney’s fees and court costs in the case of a dispute where if you have to sue, you get what is owed to you and can cover the fees to pursue it legally. 

Credit Card Authorization

Your contracts should also follow best practices for accepting credit card payments by including language that states that the client agrees to allow your company to charge their card for any amount here rendered and that they agree to not contest any of the charges. The credit card authorization form can be a separate document, or it can be incorporated into your contract. Either way, you need your client to sign it. If it’s in your contract and the client signed for what they owe you, what the credit card company decides to do is not binding on you, and you can definitely pursue all of your legal remedies.

Dispute Resolution

Another important component of your contracts is dispute resolution. Your dispute resolution language should specifically state that a dispute will be resolved in, say the County of Los Angeles, State of California. This is particularly important for some clients who might be doing business online or doing business with clients in other states. If they have a dispute then we’re going to go to court in Los Angeles as opposed to having to go to the place where the contract was performed. Ordinarily, you have to go to where your defendant is located, unless you have a written contract that says if we have a dispute we will go to court in Los Angeles, for example. This just may save you from having to fly to another country or state to pursue your legal remedies!

If you do decide to come to a settlement and perhaps agree to being paid a lesser amount despite being owed more, then you need to write a confirming letter to the party. In this letter, you need to state your position that they owe the full amount of the contract but in order to compromise and come to a resolution, you will agree to accept a specified amount — and include the statement that this is an attempt to reach an amicable resolution to this situation and all of my rights and remedies are reserved. If you don’t include this specific statement, you could face a situation if you choose to later pursue further legal action, where the party is stating that you simply agreed to a lesser amount and nothing else is owed to you, despite the fact that they breached the contract.

Take Away

Most business owners want to ensure their customers are happy and if not, they want to know why. In fact, in most cases, the business will find a way to work out an arrangement or come to a settlement that wouldn’t escalate to a dispute. However, sadly some clients just avoid these situations and get out of paying the bill by claiming fraud rather than dealing with the business directly. It’s not personal, it’s just part of the landscape of doing business. Bottom line is, if they signed your contract and you performed services, then you’re entitled to be paid.

Protect Yourself with a Contract Review
Contact the Chase Law Group Team to walk through some of the areas of your service agreements and contracts that can help protect you and your business.