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Overview of ACH Disputes and Chargebacks with Stripe

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Important Terms:

ACH: ACH is an electronic funds transfer (EFT) between two bank accounts using the Automated Clearing House (ACH) network. It's a secure way to transfer money without using paper checks, wire transfers, or cash.
ACH Dispute: An ACH dispute occurs when your customer contests an ACH transaction processed through their bank. This can happen for various reasons, such as unauthorized charges, incorrect amounts, or revoked authorization.
ACH Chargeback: An ACH chargeback specifically refers to when the disputed ACH payment is refunded to your customer.

ACH Disputes Process:

Customer Dispute Process

  • Customers can dispute an ACH transaction through their bank within 60 days for personal accounts and 2 business days for business accounts.
  • If the dispute is successful, the funds are immediately reversed, and Stripe does not allow merchants to contest ACH disputes.

Merchant Response & Next Steps

  • All ACH disputes are final. There is no way to challenge or recover funds through Stripe.
  • If a customer disputes an ACH charge, their payment method is invalidated and cannot be used for future payments.
  • Merchants must contact the customer directly to resolve the issue and, if necessary, set up a new authorization to process payments moving forward.
  • Merchants who receive a dispute will be charged a fee of $30.

Best ACH Practices for Merchants:

Timeline for ACH Disputes: 

ACH disputes follow a structured process governed by NACHA (National Automated Clearing House Association) and the customer’s bank. Below is the general timeline for ACH disputes, from the original transaction to resolution.

  1. Initial ACH Transaction Processing (Days 0 - 5)
    • The merchant initiates an ACH debit from the customer’s bank account.
    • The customer’s bank processes the request and debits the funds from the customer’s account.
    • The funds are settled in 4-5 business days and deposited into the merchant’s account.
  2. Customer Files a Dispute (Up to 60 Days)
    • Customers can dispute ACH debits if they believe the charge was unauthorized, incorrect, or revoked.
    • Disputes must be filed within 60 calendar days of the transaction date (for consumer accounts).
    • Business accounts have only 2 business days to dispute under Commercial ACH Rules.
    • The customer files a Written Statement of Unauthorized Debit (WSUD) with their bank.
  3. Bank Investigates & Returns Funds (Days 1-5 After Dispute Filed)
    • The customer’s bank reviews the dispute and checks the validity.
    • If the dispute is valid, the bank reverses the ACH transaction and returns the funds to the customer.
    • The merchant’s account is debited the disputed amount, and a Return Code is issued for the reason (e.g., R10 - Unauthorized, R07 - Authorization Revoked).
  4. Merchant Notification & Response (Days 5-10)
    • The merchant may receive a notice of dispute from their payment processor or bank.
    • If the merchant has a valid authorization, they may contact the customer to resolve the issue directly.
    • Unlike credit card chargebacks, ACH disputes cannot be challenged or reversed through the banking system.
  5. Resolution & Next Steps (Days 10+)
    • If the dispute was due to a misunderstanding, the merchant may ask the customer to issue a new payment.
    • If the dispute was fraudulent or unauthorized, the merchant loses the funds permanently.
    • The merchant may take alternative action to recover funds, such as:
      • Sending the dispute to collections.
      • Issuing a legal demand letter.
      • Filing a small claims court case.

Final Outcomes of ACH Disputes:

If the dispute is valid: The funds remain with your customer, and the merchant cannot appeal.

If the dispute was an error: The merchant must work directly with your customer for resolution.

If the dispute was fraudulent: The merchant can report the fraud and seek legal or collection action.

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