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I had a dispute regarding a tip charge on my credit card when I dined in a restaurant. The tip amount which I signed to pay is $8.98 but the restaurant charged me $15.00. A few days later when I realized this, I filed a dispute with my credit card company and uploaded a picture of the receipt showing the details.

To my surprise, after a few seconds, I received the following message:

"We are happy to notify you that this case has been resolved in your favor. A credit for the disputed amount will be applied to your account. Any interest or fees that may have been added you your account as a result of this issue have also been corrected. We consider this investigation to be complete. A letter confirming case resolution has been sent via email, mail, or secure message at Discover.com."

I am amazed at how quickly my dispute was resolved (in literally seconds). Do they really have the time to review my description as well as check my uploaded receipt? I doubt it. Or does my credit company simply trust everything that I said? Who will pay for the disputed amount? The credit card company or the restaurant? Will the credit card company really contact the restaurant to verify all the details?

Edit: The restaurant was buffet style and the base charge was $59.9 before tax or $64.39 after tax. The tip amount was calculated based on 15% of the charge before tax, which is lower than the minimum amount they suggested (18% of the after-tax amount). Whether I should pay the tip based on the price before or after tax belongs to another discussion, but the suggestion should not be binding and I should have my right to decline their suggestion.

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    Some vendors accept charge backs under a certain amount/frequency without challenging them, in exchange for lower processing costs. Whether that's the case here, quien sabe?
    – keshlam
    May 3, 2023 at 3:18
  • .... And the vendor end of the system doesn't much matter for a Personal Finance discussion, dies it?
    – keshlam
    May 3, 2023 at 16:39
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    I used to work in a call centre for a major bank, name rhymes with "Practical Won". If you called in to complain about a transaction for less than $10, all agents were allowed to issue a credit for that amount meaning the company would absorb that cost. The whole point was to maximize customer satisfaction in cases like the one you mentioned.
    – Arriel
    May 3, 2023 at 19:23
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    And there's obvious proof of this so there's just no point wasting time to process it. Any random person on the street would agree that OP was overcharged.
    – Nelson
    May 4, 2023 at 0:56
  • How much was the base charge? May 7, 2023 at 4:02

6 Answers 6

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I would wager (without knowing any internal details of Discover's dispute processing) that they have a rule that says

  • If a person who has made fewer than X disputes previously
  • Files a dispute for less than Y dollars
  • For a transaction type that has a relatively high probability of being incorrect (and restaurant tips tend to be in that category since it's often a human trying to read terrible handwriting in order to do manual data entry)

that it's better to just automatically find in favor of the card holder and take the money back from the restaurant. It is unlikely that it would be worth the cost of labor for either Discover or the restaurant to have a human do any sort of investigation.

It's possible that Discover is able to have a machine read the receipt you posted and confirm the numbers you entered automatically. I'd bet on the low-tech solution but it might be reasonable for Discover to have built that sort of OCR based automated solution.

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    Or perhaps it works the way my bank does: They first pull the money back and then see if the merchant kicks up a stink.
    – TooTea
    May 3, 2023 at 9:44
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    @RonJohn - I tend towards betting that more of the world is run by old legacy systems than I would expect. Saves me from disappointment. May 3, 2023 at 9:47
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    It's possible that in this low-stakes situation, if the restaurant does kick up a stink, then Discover will just eat the cost themselves. But that outcome looks the same to the customer, so no reason to delay refunding them.
    – Sneftel
    May 3, 2023 at 11:20
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    I've worked at a highly digital bank, and that sort of complexity just isn't done. There isn't enough disputes to warrant spending even a single engineer's time ($100k+/year) on a system for OCR'ing receipts. There are, on the other hand, versatile heuristic systems, which know 90% of infrequent chargebacks under $10 are valid, and the other 10% would cost the bank much more than $10 each to even look at.
    – Therac
    May 3, 2023 at 19:22
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    Indeed, I can confirm that it costs at a minimum $15 to do a chargeback end to end, on the simplest of cases. My bet is that they didn't even push it out to the restaurant. They probably just ate the $6.02 to keep you happy.
    – Ryan
    May 3, 2023 at 20:24
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I would assume unless your account has a history of suspicious chargebacks, they just always assume a dispute on an added-tip amount should be resolved in favor of the cardholder. This is not an amount you had any contractual obligation to the merchant to pay, and it's easily subject to human entry error or malice. Pretty much any human process to review the facts could find the cardholder's argument compelling (at least enough not to risk ruling against them) here unless they have a history of shenanigans clawing back tips, so it just makes sense to auto-approve it and not waste anyone's time (money).

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  • Thank you for your answer! I am also wondering how do they recognize this as a dispute over a tip in 2 seconds.
    – Zuriel
    May 3, 2023 at 14:48
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    @Zuriel - The transaction type identifies the fact that it is a restaurant and there are separate sub-transactions (or related transactions) for the bill and the tip. In a traditional sit-down US restaurant, those two transactions would normally be generated at slightly different times (i.e. transaction 1 runs your card for the bill, they print the receipt, you add a tip, they run a second transaction for the tip). May 3, 2023 at 15:23
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    @JustinCave: I think there's usually only one billable transaction, but it's preceded by an approval step. It would be logical for the card holder to automatically approve adjustments to billing amounts which do not reduce them below approval amounts, leaving up to the merchant the question of whether to pursue payment.
    – supercat
    May 3, 2023 at 16:48
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I think it was mentioned in one of the comments, but I'll add it to the answer.

Generally, if you charge back a charge that hasn't been preapproved by the issuer, the burden of proof is on the merchant. In this case, the preapproval is for the amount of the restaurant bill, whereas the tip is added on top of that later. So the merchant got the approval for the billed amount, but not for the tip. As such, the chances of the merchant to prevail in chargeback diminish significantly just due to the nature of the transaction. On top of that the dispute is about a handwritten addition to the printed bill, that anyone could have made. The issuer would rule in your favor even if the merchant contested.

So for this type of transaction, saving everyone the trouble of wasting the time and money of a human to look at it just to reach the same conclusion the automation could have makes sense.

If the issuer sees you abusing the process and charging back tips all the time from many restaurants - they'll start looking at you. If the merchant processor for the restaurant notices that a lot of customers are charging back the tips - they'll start looking at the merchant. In a case of an occasional one-off - it's just cheaper for everyone to give you the money back and move on.

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I was once in a car accident where the only damage to my vehicle was tire that needed replacing. The other party had some damages but was not interested in filing a report because (a) they were in the wrong and (b) they had some insurances issues (I never got the fine details).

I called my employer as this was a company car (who called the car's leasing agency). The cost of replacing the tire would be €90. They instructed me to have the tire replaced and they reimburse the full cost. I did not need to file an accident report or send them anything. They told the other party that they were not going to pursue any damages.

At first blush, it seems weird that the company avoided an accident report where they were in the right, and instead opted to just pay for the damage to my/their vehicle out of their own pocket. This is very similar to the scenario you found yourself in.

Simply put, the amount of salary they would've paid to their staff to handle an accident report and all the communication involved (this was across international borders as well) would cost them the €90 several times over. It just didn't make financial sense to do so.

I suspect the credit card company has done a similar cost/benefit analysis, and decided that the amount you were contesting would cost them more to investigate compared to the risk of wrongly reimbursing you for it, so they didn't bother putting extra time in confirming your claim.

The money you're asking for is less than 15 minutes of someone's wage, and there was a high likelihood that you were going to be paid out anyway.

  • In the case where you were correct, any time spent on confirming your claim would be a waste of money (in the form of salary) to the company.
  • In the case where you were incorrect, how much time would have been spent on investigating this, communicating this to you, and then probably having to deal with you refuting their findings? All of this time, someone's being paid a salary by the company. It won't take much for the salary to cost more than the cost they're refusing to pay out.

Therefore, when the confidence in your claim is high, and the cost of being wrong is tiny (since you asked for a few bucks), it just doesn't make sense to pay even more in staff wages over this.

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Others have pointed out the mechanics of how an automated system might flag and auto-approve disputes for small amounts, but it's also worth mentioning why this is good business for the credit card company. They have a vested interested in the general public maintaining a good perception of credit cards - the risks of credit card fraud are well-known, so many companies offer fraud protection guarantees or dispute processes that involve very little hassle. If people constantly have to jump through hoops to dispute charges they never made, credit cards might become somewhat less popular. It's a net win for the company to approve disputes quickly and easily even if it means approving some things they shouldn't have, since it means people will continue to use their products.

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  • Thank you for your answer! What if customers make malicious and dishonest disputes?
    – Zuriel
    May 3, 2023 at 15:12
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    @Zuriel An automated system should have some basic checks to prevent abuse, and individual bad actors can be flagged for more serious review. I don't have data to support it, but I expect the rate of fraudulent disputes is quite low compared to the rate of real ones, so in aggregate it's usually a reasonable starting assumption that a dispute is real unless there are some red flags to suggest otherwise. May 3, 2023 at 15:28
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    @Zuriel Disputing a charge dishonestly is a form of fraud and is a serious criminal offense. Fraudulent activity generally has a number of markers that credit card companies have become very good at detecting. If the credit card company thinks that you might be trying to game the system, they will not hesitate to file a report with the relevant authorities.
    – bta
    May 3, 2023 at 19:05
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    @Zuriel For a lot of these kinds of things, the cost of investigating a small claim to find out whether it's dishonest far outweighs the cost of just paying the claim. Just one minimum-wage employee spending even an hour on it would cost more than the OP's claim. Even if they could someone only pay for investigation if it really was fraud, it would actually cost the company less to just let it happen... once. They have records to instantly tell if a customer regularly files small disputes, which are much more likely to be fraudulent (and more likely to keep adding up in future).
    – Ben
    May 4, 2023 at 2:52
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Tips are a different ball of wax than anything else. The catch on tips is

  1. They're seldom in hard numbers on the receipt
  2. They require manual keying

They had you upload your receipt, showing the actual tip amount. Why not review it? There's a decent chance the restaurant will not challenge the chargeback. Challenging it takes time, and they likely won't fight over $6.02. If they do, the credit card company will then review your image and likely present it as evidence to the restaurant.

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