Why Do Refunds Take So Long? [2022]

Why does it take 5 days to refund you, but payments are instant? But, are they instant? Is there some kind of a conspiracy from the banks to hold your money for long? Here’s what’s going on when it comes to refunding times.

Why Do Refunds Take So Long?  For the most part, it’s simply because the credit system takes a few days to process the refund transaction. Charges seem instant because of authorizations, and neither refunds nor purchases are instant, but take time to finish (to post).

They may seem instant, but purchases aren’t usually instant in the US for buying with a credit card or debit card.

They only seem instant from your end, but you’re not seeing the middle of the merchant’s end. So for the most part, since refunds are just purchases in reverse, it takes time for the entire process to finish. Therefore, when you reverse the process, it takes just as long. 

Why Do Refunds Take So Long to Process?

person paying with Visa on white POS machine

Many purchases take several days to finish, even though you may be seeing instant charges on your end. Most refunds take at least 2 business days to finish, and most purchases do, too.

As previously mentioned, refunds are purchases in reverse. The credit/debit system is designed in such a way that charges are “instant” because of authorizations.

Authorization is a courtesy to show you how much you owe in pending transactions and to help prevent you from overdrawing your account. Your issuing bank (the bank you have your credit or debit card with) only earmarks the funds in your account.

It usually takes time for the receiver of the payment to get the money. This is when the transaction is pending. The merchant gives you the stuff when they get the authorization, but they don’t get the money for several days (sometimes they do). 

When you do a refund, the flow is reversed. You simply wait for the ACH transfer batches to complete. Usually, they happen daily.

There is another theory why refunds take so long, and that’s because of the “float”, or the floated money, which some financial institutions may take advantage of. This means that the interest is earned on your “floated money” during the refund delay.

This theory states that some financial institutions (such as banks, payment card issuers, etc) will wait until the last possible hour to refund you, so they can profit via lending against that money. Banks make most of their money lending against the money you have in the account. Your money is their collateral. So it would make sense for them to do this.

How accurate this theory is I’ll leave that for you to decide because it’s a complex topic. I’ll just advise you to use critical thinking when dealing with these issues, and educate yourself financially. And if you lack critical thinking skills, acquire them immediately.

How Does a Refund on a Credit Card Work?

The credit card system in the US is designed to give the appearance that purchases are instant because of authorizations. But here is the credit card refund process:

  1. The customer requests a refund. The merchant’s bank requests a refund transaction from the bank.
  2. The bank checks with the merchant’s bank to make sure they have the funds and puts a hold on the amount.
  3. The customer’s bank has to settle the transaction. This is usually done in batches once a day by the payment processor. They settle at least once a day.
  4. Settlement takes up to 72 hours to process. Once the funds are sent from the merchant’s bank to the customer’s bank, the settlement appears on the merchant’s bank account, the funds are withdrawn, and the authorization is canceled.
  5. The customer’s bank updates the customer’s account to show that the funds have been received. This can take up to 24 hours.
  6. It’s been 2-5 days, and everyone has their money now. The refund is complete.

This is usually called the ACH (automated clearing house) transfer process, on which you have to wait to finish.

Refund on a debit card works similar to the refund process for the credit card, illustrated above. When you pay for an item, the card company fronts the money to the merchant while they want to get the money from your bank.

When there is a refund, the process is reversed and nothing is done to make the process look faster. During a refund, all of the parties wait for the money to complete the ACH transfer process before the balance shows anywhere in your balance.

However, while debit and credit cards use the same end-user interface, their back-ends can be very different. 

woman holding a credit-debit card with laptop

How Long Should a Refund Take by Law

For purchases done by credit and debit cards in retail, companies are usually required to issue a refund within 20 to 30 days, by law.

All retailers must have refund policies clearly presented, and if they do not refund, then also a no-refund policy.

Refund is not a legal right in the US on the federal or state level, however, the stores are required to clearly display their policies on returns and refunds. But, you are always protected by law against unauthorized use of your credit/debit cards.

If the retail store violates the laws by not clearly displaying their “no refund” or “no return” policy, you may be able to return a purchased item with proof of purchase for a full refund, depending on the state (for example 30 days in California).

For most states, you have no rights to refunds and returns, unless the retailer specifically states it. Whether you can receive a refund will depend on the merchant’s return and refund policies.

Therefore, it’s not illegal for a company to not refund you if their refund policies and state laws protect them.

For most purchases, you’ll have to demand a refund within 30 to 60 days, and a chargeback even up to 120 days for some credit cards. 

If someone used your card without your consent, you can always demand a chargeback, as you are protected by the law from unlawful purchases and credit card frauds. The Fair Credit Billing Act (FCBA) protects you against this.

To further protect your cards consider using virtual credit and debit cards.

How Long Can a Company Legally Hold a Refund?

Companies must refund you usually in 20 to 30 days, depending on the state law and company policy on refunds.

All Issuing Banks can legally hold the money from refunds for up to 30 days. This allows them time to verify that the money for the refund is securely in their control, and to ensure that your account is in good standing. It also gives them the time to detect fraud against the bank or credit system.

If you are a high-risk account, they may keep your money on lockdown.

What Is a Refund Agreement or Refund Policy?

A Refund Policy is there simply to inform the consumers whether the retailer, a merchant, or a financial institution offer refunds or returns. If there is a no-refund policy, then refunds are not required by law.

Consumer law return policy in the USA must only inform the consumer whether refunds and returns are accepted or not. If there is a no-refund policy, then then you may not be able (by law) to return or request a refund.

You can check your rights and law by state in regards to return and refund policies in retail. Here are the links to some of the larger states regarding refund laws:

What is Visa Refund Policy?

Visa has a Return Protection policy that will reimburse you for the cost of an item within 90 days of the purchase date if you are not satisfied with it, and the retailer won’t allow it to be returned.

All valid cardholders of Visa in the United States are eligible for this refund, however, there is a limit of $300 per item, and a maximum of $1,000 per account. 

Visa credit-debit card on a grey laptop

Why Do Amazon Refunds Take So Long?

Amazon refunds can take a long time because Amazon won’t process your refund until they have received your item. To refund, you need to ship the item back to Amazon, then they will start processing the refund. This is why it can take so long, however, some issuers can have policies that will prolong this period.

Amazon Refunds usually take 3 to 5 business days for a credit card and up to 10 business days for a debit card. For some prepaid cards, it can take up to 30 days.

Why Do PayPal Refunds Take So Long?

PayPal refunds can take so long because of unusual circumstances, and generally, the refunds should be completed in under a week. So if there is some delay, it is mostly because PayPal is waiting on a merchant. You may want to contact the merchant to speed things up.

Usually, PayPal is fast when it comes to refunds, and most of the delay is on the payment method’s side, not PayPal. There is not much that PayPal can do to speed it up.

Why Do Steam Refunds Take So Long?

Steam refunds may get delayed because of international payment methods. Another reason may be that Steam is considering your case on a case-by-case basis, because you may have surpassed two hours of playing, or 2 weeks since the purchase, which is the requirement.

Refunds from Steam are usually pretty fast, from a few hours to 3-4 days. Worst case scenario it’s 7 days.

Do You Get Sales Tax Back on Returns?

If you’ve got a receipt, then you can get a sales tax refunded when you return an item. The reasoning behind this is if you paid for something and paid sales tax for it, then you should receive the same sales tax back when refunding. 

Many stores have similar policies for returns and refunds, but some states have specific laws that don’t allow this. Also, some companies may not accept returns without a receipt. 


  • Alex Mitch

    Hi, I'm the founder of HowMonk.com! Having been in finance and tech for 10+ years, I was surprised at how hard it can be to find answers to common questions in finance, tech and business in general. Because of this, I decided to create this website to help others!