How Credit Repair Companies Can Fight & Win Chargeback Disputes
Reports show that 29 to 79 percent of credit reports have material errors, which has created a large demand among consumers to fix these errors. This problem has created a new business need as consumers work to improve their credit scores. It has been estimated that more than 5 million consumers have utilized credit repair services in the past. Like any industry, there are good players who know their business and bad players that ruin the reputation for themselves and others.
Due to false promises made by some of these institutions, customer dissatisfaction is high. This has resulted in heavy regulation for credit repair companies in various states and increased chargebacks for those who accept credit card payments. The life-time value of a customer in the credit repair industry is 3 to 6 months. When a customer is dissatisfied with the service, they call their credit card issuer to file a dispute. These disputes cay come as an avalanche for merchants since some customers will dispute 3 to 6 months’ worth of transactions instead of just one.
Credit repair merchants are quickly learning that chargebacks can threaten their very survival. When you factor in transaction fees, operational costs, marketing and acquisition costs and chargeback fees, the “true cost” of a single chargeback can be 2.5 times the transaction value. This is why credit repair merchants must fight back against chargebacks to protect their businesses, merchant accounts and reputation.
Top 3 Challenges Credit Repair Merchants Face
Service Expectation: Credit repair companies make their best efforts to improve credit scores but sometimes fail to disclose the terms and conditions of their service. Consumers have high expectations that their credit score will improve within a short period of time. But no credit repair company can guarantee a credit score improvement since it depends on prevailing and future debts that the consumer might into, which can further affect their score.
Nature of Sale: A large portion of sales in the credit repair industry happen over the phone. This makes it challenging for credit repair merchants to verify cardholder data using a fraud prevention tool. Activating AVS/CVV match and ensuring the name of the cardholder is the person on the phone can help eliminate some of these fraud claims.
Lack of Central Body: The credit repair industry lacks a major governing association or publication that can provide its members best practices, laws affecting their business, compliance guidelines stipulated by federal agencies or a centralized place for merchants to network with and learn from each other. The organizations that do exist are either small or fairly new with few members. This industry is still in its early stages and is in desperate need for an association to guide them.
Top Reasons for Credit Card Chargeback Disputes
Based on our own internal data analysis, the top reasons for credit card disputes in the Credit Repair industry are as follows:
Best Strategies to Fight & Win Chargeback Disputes
Chargeback representment occurs when a merchant decides to dispute a chargeback filed by a customer. As a merchant, you have the burden of proof to win the case and must provide the right compelling evidence to the acquiring bank, who then sends it upstream to the issuing bank, who then makes a final determination.
Though the card networks may stipulate the guidelines for payments and dispute resolution, not all chargebacks are evaluated the same way.
This is because the ultimate decision is made by the issuing bank. Because the evaluation process is manual, and unique for each issuing bank, merchants must present the right compelling evidence in a structured way so that the issuer can make an informed decision.
For credit repair companies, the following are recommended to win more chargebacks:
Signed copy of service agreement with the card holder outlining the deliverables, performance and cancelation clause
Order invoice outlining the fees, length of service, card holder email and billing address information
Transaction receipt from your payment gateway showing AVS and CVV match
Communication messages between you and the card holder
Copy of refund or partial refund receipt if prior refund was issued
Cover letter explaining the reason for disputing the chargeback
Website checkout page copy including terms of service information
Options to Handle Chargebacks
Credit repair and other types of service providers have three options for handling chargebacks—don’t dispute them at all, fight them in-house, or outsource to a chargeback management company.
Not Disputing Chargebacks: A lot of merchants accept chargebacks as a cost of doing business, considering it a viable option since they do not have the expertise or time to respond to chargebacks. This can lead to revenue losses of up to 40% if disputes are not handled on time. Plus, with the new card network policy mandate, merchants must acknowledge a dispute, and failure to do so might lead to a penalty as well.
Fighting Chargebacks In-house: If you have 50 chargebacks or less per month, have an experienced staff member to dispute chargebacks, or have a high recovery/win rate of more than 60%, fighting chargebacks in-house might make sense. Having an in-house team doesn’t come without its own set of challenges. For example, during peak chargeback season if an in-house member goes on vacation, or even quits, chargebacks will not be fought on time. Plus, in-house teams usually recover a lower percentage of chargebacks because they lack experience disputing them.
Outsource to a Chargeback Management Company: Outsourcing to a chargeback management company has its pros and cons. If you are looking for a partner who can provide analytics to identify root causes of chargebacks and increase your chargeback win rate, with a dedicated team of experts and tools to overcome your chargeback challenges, outsourcing might make sense. Be careful however when selecting a chargeback management company, because making the wrong decision can be costly before you even realize their true worth.
Want to learn more about fighting chargebacks? In order to fight chargebacks effectively and recover your lost revenue, you must first understand how chargebacks are filed and how the dispute process works.
Download your copy of The Smart Way to Fight & Recover Chargebacks to learn how to fight and recover your chargebacks the "smart" way.