The chargeback system creates a powerful perception that using credit cards is virtually riskless for consumers. This sense of security, intentionally cultivated by the card industry, was critical for overcoming early internet fears and unlocking billions of dollars in online commerce that would not have otherwise happened.
Regulation E mandates that if a bank denies a fraud claim, it must provide a written explanation and supporting documents. This procedural rule is a powerful tool for consumer advocates, effectively forcing the bank's own staff to build the case file for consumers who lack their own records.
The chargeback mechanism adjudicates over 100 million consumer-business disputes annually, far more than the formal US legal system. It operates as a privately funded, bank-run judiciary with its own rules and low costs, forming an essential foundation of modern e-commerce.
Counterintuitively, charities are a major fraud target not for their funds, but as a tool. Fraudsters use them for small, initial transactions to test if a stolen credit card is active. This validation makes the card more valuable for larger fraudulent purchases, putting charities on the frontline of the fraud supply chain.
Regulation E, a 1979 law, legally mandates that financial institutions bear liability for unauthorized electronic fund transfers. This forces banks to create robust, consumer-friendly dispute systems like chargebacks, making them appear responsive when they are simply complying with strict federal rules that protect consumers.
Unlike profitable credit cards, Zelle is a low-monetization service banks created to compete with fintech apps. Because it can't afford the fraud costs mandated by Regulation E, banks attempt to argue that customer-authorized (but fraudulent) transfers aren't their responsibility, creating a major policy conflict.
The modern credit card industry originated from a risky experiment where Bank of America mass-mailed 60,000 unsolicited, active cards to an entire city. Despite losses from abuse, this "Fresno Drop" proved the middle class would adopt plastic for general-purpose transactions, directly leading to the creation of Visa.