8 Important MasterCard Chargeback Rules


Chargebacks present a frustrating problem to merchants, in part because every credit card issuing company has different policies and reason codes. Accepting a variety of credit cards is good business practice, but it can be a huge hassle when dealing with friendly fraud chargebacks. Let’s zoom in on the rules and regulations surrounding MasterCard chargebacks. Banks and merchants alike should know these MasterCard chargeback rules and guidelines inside and out to prevent fines, losses, and potential negative consequences from MasterCard.

Rule #1: What Is a Mastercard Chargeback?

New call-to-actionAccording to the most recent MasterCard Chargeback Guide, this major credit card company defines a chargeback as a “procedure in which an issuer charges all or part of the amount of an interchange transaction back to the acquirer in accordance with MasterCard regulations.” The cardholder then receives a credit in their account for the charged amount.

A chargeback process is usually initiated when a cardholder contacts their issuer about a transaction and argues that it is invalid. In some cases, the cardholder can also dispute a transaction. The issuer will then return the transaction to the bank.

Rule #2: Mastercard Chargeback Time Limits

One of the most important MasterCard chargeback rules merchants need to know is how long they have to dispute a chargeback. Every dispute will be governed by chargeback time limits.

MasterCard has particular requirements around chargeback timel limits, and each reason code has distinct regulations.

As such, it’s important for merchants to be able to quickly and efficiently respond to charge disputes, regardless of the cause. 

Rule #3: Mastercard Chargeback Reporting

Health Insurance - Chargeback Case StudyMasterCard has a program in place designed to help banks monitor the merchants who use their services. This is called the Excessive Chargeback Program, and it sets rules and regulations for monitoring merchants’ chargeback performances. Banks are required to report back to MasterCard if they conclude that a merchant has reached or exceeded their chargeback threshold for any given month.

Banks must submit monthly reports for each merchant enrolled in the MasterCard chargeback monitoring program. Failure to provide a timely report can cost the bank up to $5,000 per merchant enrolled.

Rule #4: Avoid the Chargeback Monitored Merchant program

The ratio of number of chargebacks to calendar month is a bit complicated, which is why MasterCard has designated the proper way to calculate what’s acceptable. The chargeback-to-transaction ratio refers to the number of chargebacks the bank receives in one month, divided by the number of transactions the merchant processed in the previous calendar month. The final figure calculated is in terms of “basis points.” For example, if a company has a chargeback-to-transaction ratio of 1 percent, the company has 100 basis points.

It doesn’t take much for a merchant to automatically be enrolled in the Chargeback Monitored Merchant program. The two criteria are that a merchant has a chargeback-to-transaction ratio of more than 50 basis points in addition to 50 or more chargebacks in a single calendar month.

Rule #5: When Chargeback Monitored Merchants Become Excessive Chargeback Merchants 

Manage Chargeback In-House Or OutshoreIf your bank has already flagged your businesses a Chargeback Monitored Merchant for MasterCard, you’re just a few steps away from being branded an Excessive Chargeback Merchant or worse, ending up on the MATCH list. It’s paramount that you take action before this happens. If you have a chargeback-to-transaction ratio of 100 basis points with 50 or more chargebacks in a month, for two calendar months in a row, you’ll be designated an Excessive Chargeback Merchant and in some cases you could lose your merchant account.

Rule #6: Excessive Chargeback Merchant Guidelines

Unfortunately, becoming an Excessive Chargeback Merchant isn’t the end of the road. There are two tiers of severity within this label. For the first six months under this designation, a merchant is a Tier 1 Excessive Chargeback Merchant. After the first six months, you’ll automatically become a Tier 2 Excessive Chargeback Merchant.

As a Tier 2 Excessive Chargeback Merchant, MasterCard may step in. The merchant’s bank may be required to formulate an action plan to lower the existing chargeback-to-transaction ratio. If an institution has consistent problems with merchant chargebacks, MasterCard could issue disciplinary action, requiring the bank to enter the Global Risk Management Program to be reviewed.

Once you are labeled an Excessive Chargeback Merchant, it can be difficult to regain your reputation without help.

You’ll need to lower your chargeback-to-transaction ratio so it falls below 100 basis points and then maintain that status for two calendar months in a row. It’s always best to begin resolving the issue as quickly as possible to avoid becoming a Tier 2 Excessive Chargeback Merchant.

Rule #7: How Mastercard Chargebacks Work

Now that you have a sense of what happens if you fail to address a chargeback problem, let’s take a look at what constitutes a valid chargeback, according to MasterCard. The most common chargebacks occur as a result of either customer dispute or a transaction processing error. Fraudulent purchases can also cause chargebacks.

If the credit card issuer determines that a transaction is invalid, the issuer will charge it back to the merchant’s bank or credit card processor.

Both parties must thoroughly research the available information, including any documents submitted by the merchant or the customer.

Rule #8: With MasterCard Chargeback Rules, MasterCard Has Final Say

A chargeback needs to go through three different stages. The first stage is the initial chargeback. If the first chargeback is unresolved, the merchant’s bank may have to submit a second presentment. Finally, the case may go to arbitration. When a card issuer and the merchant’s card processor cannot reach an agreement by the end of arbitration, MasterCard must step in to resolve the issue.

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