Understanding EBT Chargebacks and Dispute Resolution

The Electronic Benefit Transfer (EBT) system is an electronic distribution system that transfers government benefits, such as SNAP, WIC, and TANF, to recipients using a card with a magnetic stripe, similar to a debit card. These benefits can be used by eligible people to purchase food and other necessary items at authorized stores.

Although EBT is an important service that benefits both consumers and merchants, it doesn’t come without its challenges, one of the most significant being EBT chargebacks. By this, a chargeback happens if a transaction is challenged by the customer and the merchant has to refund the amount.

It is important for merchants to know about EBT chargebacks and dispute resolution. Failing to comply can lead to financial penalties, suspension from EBT programs, or loss of reputation. By proactively learning the rules and processes, retailers can protect their revenue, maintain program eligibility, and serve their customers more effectively.

Understanding EBT Chargebacks

An EBT chargeback takes place when a transaction that has been settled using an Electronic Benefit Transfer card is disputed by the issuing authority or, in some cases, the card owner. Unlike credit card chargebacks that are typically originated by the cardholder, EBT chargebacks are more controlled and program-specific, frequently resulting from policy or technical breaches.

EBT chargebacks come from government-mandated programs such as SNAP or WIC.

• These disputes are less about consumer dissatisfaction and more about policy enforcement or technical accuracy.
• They’re typically initiated by state agencies, not the cardholder directly.
• Timelines, documentation requirements, and appeal processes are also different and often stricter.

Common Reasons for EBT Chargebacks

For merchants that accept Electronic Benefit Transfer payments related to programs like the SNAP (Supplemental Nutrition Assistance Program) or WIC (Women, Infants and Children), understanding the reasons for EBT chargebacks is especially important. Sources of these chargebacks are usually for program non-compliance, system issues or fraudulent occurrences. Now let us deep dive into the more common reasons:

1. Duplicate Transactions

This is the most common problem. This happens when th same EBT card is double-swiped for one purchase, either as a result of point-of-sale (POS) terminal error or human mistake. For example, a cashier may accidentally enter a charge too many times or a network lag can result in multiple attempts at submitting the same charge. A chargeback will be issued when duplication is discovered by the customer or agency. Now, a merchant needs to reconcile its logs to avoid any such error to grow. Check this for a detailed explanation of how an EBT card works.

2. Fraudulent Card Use

While not as prevalent as credit card fraud, EBT fraud does occur. Unauthorized persons could acquire a recipient’s card and PIN and access the account for purchases. When the legitimate cardholder discovers the unauthorized transaction, the issuing agency is notified, an investigation begins that could result in a chargeback. Because these EBT cards are utilized by those same vulnerable citizens, the most minimal fraudulent activity can alert state regulators who may respond with extra scrutiny or some sort of penalty for the business.

3. Incorrect Benefit Type Usage

Different EBT programs have different rules about what to buy. For instance, those SNAP benefits may be used only to purchase approved food — no alcohol, no cigarettes and no hot prepared food. WIC, in contrast, restricts purchases to certain items such as formula, milk and cereal. If a retailer’s system permits a SNAP card to transact on prohibited items based on mis-programmed inventory codes or cashier oversight, the store could potentially be charged back for the exclusion of program rules. These mistakes are expensive and can result in merchant disqualification from the EBT system.

4. System or Processing Errors

At other times, the cause of failure is technical. The transaction can be placed on hold for reversal if your POS system doesn’t process a transaction correctly, or sends the wrong information to the processor or state agency. These could be incorrect timestamps, wrong merchant ID or wrong transaction code. Although they’re generally not malicious, these problems result in chargebacks and need to be addressed right away to prevent them in the future.

How the EBT Chargeback Process Works?

Understanding how to process EBT chargeback is useful so that merchants can be prepared and minimize financial liability. EBT chargebacks are a bit different from the standard credit card chargeback, and are highly regulated as well as being government regulated. Let us understand how the entire process works:

Step 1 – Transaction Is Flagged

A purchase is first flagged by an issuing authority or by an automated tracking system. This flag can come due to suspicious behavior, a mismatch in transactions or customer complaint. When a transaction is suspected of being non-compliant, the organization delivers a formal chargeback request.

Step 2 – Notification to Merchant

The merchant is then contacted by the payment processor or authority of the state. This notice contains pertinent information such as reason code, transaction amount, date, and EBT card number (partially masked). Traders have to take this paper serious & act accordingly at once.

Step 3 – Time to Respond

Merchants usually have 10 to 15 business days to respond. This timeline is strict. If a merchant does not prove or respond in time to the bank’s notice, the dispute is automatically decided in the agency’s favor, and money is taken from the account of the merchant to the agency.

Step 4 – Provide Evidence or Accept Liability

Merchants can fight the chargeback with evidence for example, receipts, POS logs or transaction info or accept the liability and pay the cost. Good documentation will often overturn the chargeback, particularly if the transaction was legitimate and processed correctly.

Step 5 – Resolution by State Agency

Ultimately, the state EBT administrator then evaluates all applications for an agreement. The solution can be refund of the money, a formal warning, or sometimes a compliance audit if there is multiple chargeback amount.

Common Merchant Mistakes That Lead to Chargebacks

Many EBT chargebacks result from avoidable mistakes made during transactions. These errors often stem from a lack of training, oversight, or failure to follow proper procedures. Below are the most common merchant mistakes that trigger disputes and revenue loss.

Accepting Ineligible Items

A major reason for EBT chargebacks is allowing the purchase of non-eligible items using SNAP or WIC benefits. SNAP strictly prohibits items like alcohol, tobacco, hot prepared foods, and non-food items such as paper goods or cleaning supplies. If these restrictions are ignored—whether intentionally or accidentally—the merchant may face immediate penalties, fund reversals, or even disqualification from the program. Here is a complete list of what is prohibited under SNAP.

Manual Entry Errors

Errors during manual transaction entry are another leading cause. Merchants may mistype the card number, enter the wrong amount, or charge the incorrect benefit type. These seemingly small mistakes can result in significant compliance issues, especially if the customer disputes the charge or the agency catches the discrepancy during audits.

Not Following Terminal Prompts

Modern POS terminals often provide alerts to guide SNAP/WIC transactions. Ignoring these prompts—such as warnings about insufficient funds, benefit type mismatches, or transaction declines—can easily lead to invalid charges. These mistakes are then flagged during reconciliation, resulting in chargebacks.

Lack of Staff Training

Perhaps the most preventable issue is insufficient employee training that leads to EBT chargebacks. If your staff doesn’t understand SNAP/WIC rules or how to use the terminal correctly, they’re more likely to make errors that lead to disputes. Even small oversights, like misidentifying eligible food items or skipping receipt confirmations, can trigger a dispute and hurt your store’s compliance rating.

How to Prevent EBT Chargebacks?

The key to avoiding EBT chargebacks is sound systems and staff training and follow up. These proactive strategies are all designed to minimize disputes and shield your business from noncompliance fines and lost revenue. Here’s how to avoid issues with EBT transactions:

Staff Education and Certification

The first and best line of defense is trained staff. The competency of staff is essential in terms of SNAP/WIC acceptance policy, approved item knowledge, and accurate POS compliance. Frequent training should be implemented, especially with new guidelines. In the onboarding process for new hires, incorporate refresher sessions so that the entire team is constantly on the same page.

Upgrade to Certified EBT POS Systems

Only use FNS-authorized POS devices that are certified for secure EBT transaction processing. Many of these systems include general compliance checks, so you are less likely to make manual mistakes. It updates your software with the compliance patches so that you don’t have to worry about rule changes or updates in the benefit type.

Always Request and Retain Customer Receipts

Receipts are quite important when disputing as well. Ensure to always leave a copy of the customer’s receipt and keep one for yourself, specifically with high-value client sales. These receipts prove what was bought, when it was bought, and for how much, and are critical evidence in the event of a chargeback investigation.

Monitor and Audit Transactions Regularly

Leverage your POS system’s reporting capabilities to audit transactions and identify patterns. Watch for anomalies, like lots of manual entries, abnormal SNAP transactions or repeated disputes. Regular audits help spot training gaps, fraud attempts and technical hiccups early on.

The Dispute Resolution Process: How to Respond Effectively

When facing EBT chargebacks, responding swiftly and accurately can make the difference between retaining revenue and losing it permanently. Here’s a breakdown of how merchants can handle disputes effectively:

Understand the Reason Codes

EBT chargebacks come with specific reason codes indicating why the transaction was flagged. Common examples include:

• Code 10 – Unauthorized card use
  
  
• Code 20 – System or processing error
  
  
• Code 30 – Purchase of ineligible items

Each code requires a tailored response, so it’s crucial to read the chargeback notice carefully and follow the instructions relevant to the code listed.

Gather Required Documentation

Compile all necessary evidence to support your case. Typically, this includes:

• Original sales receipt showing date, time, and itemized purchases
• POS terminal logs or journals that prove the transaction was approved and processed correctly
• Proof of compliance, such as staff training logs or certification for SNAP/WIC acceptance

The more complete your documentation, the stronger your defense.

Draft a Clear and Concise Response Letter

Write a factual, well-structured letter addressing the dispute. Include:

• A summary of the transaction in question
  
  
• References to attached documentation
  
  
• A calm, objective tone—avoid emotional or defensive language

Clarity helps reviewers process your case faster and more favorably.

Submit Response Within Deadline

Timing is critical. Merchants usually have 10–15 business days to submit their dispute response. Failing to meet the deadline typically results in automatic forfeiture of funds. Use secure submission methods like:

• Fax (with confirmation)
  
  
• Secure email
  
  
• Online portal (if available)

Always keep a copy of the submission confirmation for your records.

What Happens After the Dispute Submission?

Here is what will happen after dispute submission:

Case Review by State EBT Agency

Once submitted, the case goes to the state EBT administrator or a designated review team. It may take several weeks to receive a decision. Updates are usually sent through your registered merchant contact.

Outcomes of a Dispute

Three primary outcomes exist:

• Dispute accepted: Funds are returned to your account
  
  
• Dispute denied: Funds are permanently reversed
  
  
• Flagged for further review: May trigger a compliance audit or temporary suspension
  
  

Appeal Process (If Available)

Some states offer an appeal window, especially if you can provide new or overlooked evidence. The appeal process may involve more documentation, and the final decision is binding.

Conclusion

It is important for merchants who accept SNAP, WIC, or TANF benefits to know EBT chargebacks and how they are resolved. Unlike credit card chargebacks, these are usually initiated by government regulators, and come with rigid deadlines and filing requirements. When adopting a staff training plan, working with certified POS providers and keeping well-organized records, merchants can help prevent the likelihood of chargebacks and respond correctly if they do happen. Being proactive can help prevent revenue loss, maintain compliance and a merchant’s ability to accept EBT payments.

Frequently Asked Questions

1. What triggers an EBT chargeback?
EBT chargebacks are typically triggered by the issuing agency due to suspected fraud, ineligible purchases, or transaction errors such as duplicates or incorrect benefit usage.

2. How long do I have to respond to an EBT chargeback?
Merchants usually have 10–15 business days to respond. Missing the deadline typically results in automatic fund reversal.

3. What documentation should I provide to contest a chargeback?
Submit the original receipt, POS logs, employee training records, and a concise response letter addressing the reason code provided.

4. Can I appeal a denied chargeback?
In some states, yes. You may be allowed to submit new documentation for reconsideration. However, the final appeal decision is usually binding.

5. How can I prevent EBT chargebacks in the future?
Train staff regularly, use FNS-certified POS systems, follow transaction prompts, and always retain receipts for all EBT purchases.