Also known as: chargeback · chargebacks · charge-backs · charge back
Written by attorneys · grounded in primary & secondary sources — see below
A bank's right to deduct from a customer's account amounts previously credited provisionally for deposited items that are later dishonored. The right arises upon dishonor, suspension of payments, or other failure to receive final settlement and permits revocation of the provisional credit or a claim for refund. The right terminates once settlement for the item becomes final.
Canyon Construction granted Highland Mall a security interest in its credit-card receivables. After default, Highland Mall directed the payment processor to remit funds directly and then outsourced collection of delinquent accounts to an agency that sent only form letters. When many accounts remained uncollected, Highland Mall charged the uncollected balances back to Canyon Construction under the security agreement.
Corinne Cho deposited a large cashier's check into her account at Valley Bank. The bank gave provisional credit and allowed withdrawals. When the check was later dishonored, the bank revoked the settlement and charged the credited amount back to Cho's account, creating an overdraft that the bank sought to collect.
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No. The bank may still charge back the credit even after the midnight deadline, but it becomes liable for any loss caused by the delay.
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The right arises when the secured party undertakes collection from account debtors and the security agreement or other law grants recourse against the debtor for uncollected amounts, provided the collection efforts were commercially reasonable.
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No. A bank's failure to charge back or claim a refund does not impair any other rights it holds against the customer or third parties.
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