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Suppose I go out to eat and I pay for my meal with a credit card. I sign the receipt and when the server goes back to finalize the transaction, they put way more money for the tip than I did.

At this point, is it on me to look at the bank account and recognize that I didn't spend that much and contact the restaurant and ask what is going on? Is it on their accounting department to catch the mistake, maybe fire the employee if it wasn't a mistake, and then work with the credit card company to return the money? Or is it the responsibility of the credit card company to contact the restaurant because there's no way that a cheesecake costs $500?

Surely this happens and surely there are procedures for how this is handled and the responsibility has to fall on somebody. How this is actually handled when transacting business?

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    Are you asking about step 1? If so, why do you think the CC company would catch it? they don’t know if it was one persons eating a piece of cake or a party of 10 at a celebration dinner. – Damila Jan 28 at 2:16
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    This is also not a problem in most of Latin America. You authenticate your payment using a pin on a mobile terminal at your table or at the cashier, and you see exactly how much money you're going to pay. – T. Sar Jan 28 at 11:09
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    This is one of the reasons that everywhere non-US (maybe Canada too) all transactions (including a possible tip transaction) need to be verified with a PIN code or similar. – rubenvb Jan 28 at 14:30
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    How can this happen? Surely you approve a particular amount, which will be confirmed on your copy of the receipt. Then how could the amount charged be higher? – gerrit Jan 28 at 17:46
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    @Rsf I'm unclear on what the purpose of your comment is. Clearly, this question is not about Europe. Let's stay on-topic. – user91988 Jan 28 at 18:56
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It is always your responsibility to verify that the charges on your account are accurate.

Some credit card companies are proactive in this, looking for anomalous charges and alerting the consumer to verify whether or not the transaction is legitimate. But this cannot be counted on; people occasionally make purchases that are different than what they have done in the past, and the credit card algorithms may or may not flag them as unusual. In your example, sometimes people leave extravagant tips, and we don't know what the threshold is where a credit card company might automatically flag a transaction for review.

If this happened to you, you can choose to either contact the restaurant directly, or you can dispute the charge with your credit card company. If you talk to the manager of the restaurant and are able to show them a receipt, he or she should be able to issue you a refund of the extra charges. If the manager gives you trouble, or you do not want to go back to the restaurant, filing a dispute with your credit card company will initiate an investigation. This may take longer, but is an option if you are unable to work things out with the restaurant directly.

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    Just a note - if you call the restaurant, make sure they refund everything relevant. Since this is a tip, it's probably not applicable here, but once I didn't notice until we got home that they charged us for an extra plate that nobody ordered. They took off the charge for the plate, but I didn't realize until later, not the tax or the tip on the extra plate (which added up to about another $4) – Michael Jan 28 at 0:22
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    A different note: It is much more polite to the merchant to contact them first (and your bank will encourage you to do so), as chargebacks are very expensive, and they may be willing to correct any errors immediately. – chrylis -on strike- Jan 28 at 10:36
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    As an anecdote: CapitalOne emails me any time I tip more than 40% (none have been fraudulent so far, but the alert is still nice). The instructions on the alert also clearly state to contact the restaurant first, then if that doesn't work to dispute the charge. – Der Kommissar Jan 28 at 14:37
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    How does CapitalOne do that? I've always been under the impression that the restaurant only submits a single charge, and that the division between meal price, tax, and tip was one of internal restaurant bookkeeping. (Or are they getting the first meal+tax charge before you add the tip, then comparing that with the final charge?) – chepner Jan 28 at 16:34
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    @chepner That's what I assume happens. This is why the server runs your card first with just the billed amount, then you add the tip on the payment slip. When they submit the full payment, an anomalous difference can be detected. – Barmar Jan 28 at 16:40
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The merchant does have a responsibility to not charge more than was authorized, but if they fail to fulfill that responsibility, then it being corrected is dependent on the customer. You use the term "credit card company", which when used by lay people can be ambiguous as to whether it's referring to the issuing bank (the bank the money is coming from) or the network (VISA, MC, etc.) While an issuing bank may have something in place that would flag the transaction as suspicious, it's not their place to tell the cardholder they can't spend $500 for a cheesecake. In addition, the issuing bank is told just the name of the merchant and the amount, it's not provided a list of what was purchased. For all it knows, that $500 was for twenty cheesecakes, or a bottle of wine, etc. The network is even less likely to proactively get involved.

If a merchant charges a credit card in the absence of an authorization, or in excess of an authorization, the cardholder can file a chargeback. However, credit card networks generally require that the cardholder make an attempt to resolve the issue directly with the merchant first. So the customer would have to contact the restaurant, and if the restaurant refuses to credit the account with the disputed amount, then the customer can file a chargeback with the issuing bank.

The issuing bank can then just eat the cost themselves (for small amounts, this can be the most cost efficient choice), or send the chargeback along to the acquiring bank, which is the bank that collects money for the merchant. The acquiring bank can then pass the chargeback along to the merchant, or dispute the chargeback (this is known as re-presentment: they're presenting the transaction again). If the acquiring bank disputes the chargeback, then the network has procedures for resolving the dispute, including arbitration if it gets that far.

In the scenario you describe, the restaurant would almost certainly lose the dispute, as they would not have any documentation for the amount they charged (unless they engaged in some forgery or something). In addition, there currently are three main ways card are read: swipe (running the magnetic strip through a reader), dip (reading the EMV chip), and tap (using the contactless capability). Most restaurant, at least in the US, use swipe (if you look on your receipt, you'll likely see an "S" for swipe). If a merchant uses swipe, and the card has chip capability, then the merchant pretty much automatically loses any dispute (the credit card networks really want the more secure chip used, so they strongly incentivize this).

Credit card networks serve just as facilitators between banks; there's the issuing bank that is in charge of your card, and the acquiring bank that collects money from the issuing bank and disburses to the merchant. In the case of a successful chargeback, the network will instruct the acquiring bank to send the money back to the issuing bank. It's up to the acquiring bank to then get the money back from the merchant; the network isn't involved in that.

  • Corporate or government purchase/fleet cards are usually restricted by MCC (often to office supplies or vehicle fuel) and would very often decline cheesecake -- except maybe Office Depot cheesecake, and that's just too frightening to imagine. In US I believe cards on some tax-qualified accounts like HSA FSA 529 are even stricter, although those are technically debit (backed by an asset account) not credit. – dave_thompson_085 Jan 31 at 8:48
  • @dave_thompson_085 I'm not sure what that has to do with my answer, other than my claim that the issuer doesn't know what you buy with the card. MCC is very blunt instrument; it just tells you general category of the merchant, not what was actually purchased. Food at a gas station will probably fall under the gas station's MCC, for instance. There was no mention of corporate cards, so I don't know why you're bringing that up. – Acccumulation Jan 31 at 23:50
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I worked weekends in the office of a busy restaurant in the USA and that did happen once when I was there. The person reviewing sales and credit card payments noticed what seemed a particularly large tip compared to the total sale, studied the signed credit card slip itself and felt there was a discrepancy on the tip line. Like a two in front of a five making a five dollar tip into a twenty-five dollar tip on a twenty dollar sale. She then reached out to the credit card company who contacted the customer. A phone call from the customer confirmed that the tip had been altered, we reversed it, submitted the actual amount customer intended, and the offending employee was fired.

So hopefully the person who submits credit card sales for payment is attentive and proactive and it isn't even finalized in it's fraudulent form. If it does go through, credit card companies seem to have fairly good algorithms used to detect and stop them too. But ultimately it's the credit card user who has to check their statements carefully monthly and promptly request investigation and reversals of theft.

  • how did you know there was an offending employee? Is there no other way than an employee doing this on purpose? – user1993 Jan 28 at 18:59
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    The employee admitted as much when questioned. It was clear the receipt had been altered, one of the numbers was written over to make the fraudulent total add up. It is possible to have just been error, the server could have typed into the credit card terminal the wrong tip and grand total but in this case it was obviously faked. The server was also a problem employee so it was questioned sooner because of that I'm sure. – PartlySunny Jan 28 at 19:21
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This happened to my father. At a restaurant in a beach town he bought some T-shirts on the same charge as a meal (at the counter when paying, the server didn't bring them), and tipped on the meal amount only. The management scaled up to an 18% final tip on the total.

It was on my father to notice.

When my father reconciled the statement with the receipt he called the restaurant, livid, and the management eventually processed a refund. I wasn't a party to the call; apparently the manager leaned on some policy in the menu, though in other experience the 18% minimum is present when you sign the slip.

We never went back to that restaurant.

0

You did not put a country tag (though I guess you have the US in mind as you mention USD as the currency) so this answer is for France (and more broadly for Europe as the CC protections are the same). This is well regulated in Europe.

Only you(1) can decide whether a payment is correct or not - by looking at your bank account a way or another (automated messages when paying, online banking, ...)

If you see a transaction which is not yours (your 500€ for a cheesecake), you inform the bank of a fraudulent transaction. The bank immediately reverses the payment.

Then comes the time for the bank to investigate. They may find that

  • the payment is indeed fraudulent and they decide whether
    • it is absolutely your fault (clearly sloppy behaviour on your side, such as prining out your CC details and posting them in the city) → they re-reverse the payment and you owe the 500€
    • it is somehow your fault (you were not really serious in your behaviour(2)) → they can make you pay the legal franchise of 100€ (used to be 250€)(3)
  • they payment is correct and you owe 500€, plus maybe a problem about you trying to defraud them

In any case the first step (= complain to the bank) is yours.


(1) banks have alerting systems which may proactively block a payment, when it was done in unusual cases. 500€ for a restaurant would not be one. A car purchase in the Bahamas when you live in France and never travel would probably trigger the block.

(2) this is a complicated part. Normally you there is no time limit when you need to inform the bank that you lost your card (and that payments were done on it). If this is your main card and you use it twice a day, getting back to them after 3 weeks to say that you lost it 3 weeks ago is "sloppy behaviour". Not "sloppy you have to pay everything" but "sloppy you will pay the franchise". Another example would be payment which is not yours: if you earn 10,000€ a month, a payment of 200€ may not be noticeable. The bank will not claim that you should have seen it earlier. If you earn 2000€ and there is a 1000€ payment - you should have seen it as it would impact your everyday life. Again - this is matter for interpretation.

(3) No serious bank would make you pay the franchise. I had this happening three times, in two cases they did not even mention it, in the third one they did, than I asked "and so?" and they replied "nothing, it is just for you to be aware but we will not make you pay it"

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