Know Your Chargeback Rights
Table of Contents
- How Fighting Chargebacks Works
- Chargeback Representment
- Chargeback Arbitration
- You Have The Right To Get Expert Help
- Can a Chargeback Be Denied?
- What Are the Grounds for a Chargeback?
When you don’t have a lot of experience fighting (and beating) chargebacks, it’s not uncommon to take a fatalistic attitude toward them. When you get notice that a customer has disputed a transaction and started a chargeback, it can feel as if the money is already lost, and that as the merchant, the deck is stacked against you. So what can you do?
It’s true that many banks choose to err on the side of keeping consumers appeased and feeling protected, but many merchants give up on fighting chargebacks before they’ve exhausted all of the avenues available to them.
Fighting chargebacks isn't just a way to recover revenue. It can also provide insights into the frustrations your customers are experiencing, whether that be things that are going wrong with your fulfillment and delivery operations, issues with your products and the way you’re marketing them, or inconsistencies in your refund policy. However, chargebacks from customer who haven't contacted your customer service are already on shaky ground.
As the architects and controllers of the card payments industry, the big card networks like Visa and Mastercard are the final arbiters of the chargeback process and the rules governing its outcomes. While consumer confidence may be a huge influence on the health of their industry, the card networks know that they depend on merchants as well, and have designed the system to try to be fair to all parties involved. As a merchant, you have rights in the chargeback process, and it’s vital that you know what they are and when you can exercise them.
How Fighting Chargebacks Works
Chargebacks were created to give consumers confidence that they could use their payment cards without fear of having their money stolen by fraudsters or dishonest merchants. They were intended as a last resort to resolve an intractable situation, not as an easy alternative to going through the merchant's return procedure. Because of that, there are some rules for initiating chargebacks that put the merchant's rights first:
- The chargeback amount cannot exceed the original purchase price
- The cash-back portion of a debit card transaction cannot be subject to chargebacks
- For chargebacks due to late delivery, a return must be attempted first
- There is a 15-day waiting period for chargebacks on items that were returned but not refunded
If a merchant receives a chargeback where they know that these conditions have not been met, then they can expect to beat that chargeback by fighting it with the right evidence. Most of the time, however, issuing banks are familiar with these rules as well, and will explain to customers trying to file a chargeback in violation of them that they can't accommodate their request. In the case of late delivery or refund chargebacks, the bank may explain to the cardholder that they must take certain actions or wait a certain amount of time before attempting to file a chargeback.
In chargeback cases, the burden of proof falls on the merchant. In order to win back their lost revenue, the merchant must prove that their charge was authorized, and that the goods or services were delivered. Fortunately, thorough record-keeping and honest, transparent business practices should suffice to ensure that merchants have all the evidence they need to fight and win many of their chargebacks.
Unlike the criminal court system, merchants don't have to prove beyond a reasonable doubt that the charge was correct. There is technically no universal standard for what counts as sufficient evidence in a chargeback case, but most of the time merchants who provide enough evidence to demonstrate that the cardholder's claim is likely to be invalid will find themselves victorious.
Merchants have the right to fight their chargebacks. They do this by "re-presenting" the disputed charge to their acquiring bank, along with evidence supporting their case. The acquiring bank evaluates the evidence and passes it along to the issuing bank for a second decision.
It may seem unfair to have your case decided by the "judge" that ruled against you the first time around, but merchants have more flexibility to provide documentation and written statements at this phase in the process, and the issuing bank will but the case under closer scrutiny. They will look at the history of the customer who requested the chargeback, and if they see a large number of prior chargebacks, they may decide against them on that basis alone.
All chargebacks fall under a specific reason code, and each reason code has certain criteria for evidence that could disprove its validity. Understanding the various chargeback reason codes and the best ways to respond to them is the best way to stop fraudulent chargebacks in their tracks.
When a merchant fights a chargeback, they send their evidence to their acquirer, who verifies whether the evidence meets requirements before sending it on to the issuer for a decision. Merchants should be sure they've gathered all the available and pertinent evidence before they submit their response, as they won't be able to add to this initial evidence package once it has been sent to the bank.
Even if the issuing bank decides against a merchant twice, after the merchant has submitted the best documentary evidence they can produce, the battle is not necessarily lost. The merchant still has the right to request arbitration.
Arbitration will cost you additional fees, but it puts the resolution of the case in the hands of the card network.
Merchants can as part of this process submit any additional evidence they acquired after submitting their first representment package. In fact, most of the time you'll want to have additional evidence that justifies taking the case to arbitration, since in most cases the card network is likely to reach the same conclusion as the bank if shown the same evidence, unless the initial decision was unusually poor.
The network will weigh various factors in reaching their decision: The technical and legal aspects, the rules pertaining to the reason code, the evidence submitted by both parties, and past precedent. Whether you believe they're impartial toward merchants or not, bringing the case to arbitration gives them the final word on the matter. The card network's decision is final and cannot be appealed.
It's worth mentioning that you do, in fact, have the right to an attorney at any point in the process. Companies can and do sometimes hire lawyers, at no small cost, to represent them in chargeback fights.
You Have The Right To Get Expert Help
When the fate of your revenue is at the mercy of a much larger company—Visa, Mastercard, or a big issuing bank—it's easy to let yourself believe that you have no say in the outcome. Just remember that these big companies have a vested interest in stopping fraud and preventing abuse of the chargeback process.
When the evidence is on your side, the avenues are there for you to make your case and prove that you have every right to keep the money you've earned.
Also keep in mind that you don't have to go it alone. Good chargeback management firms will have teams of seasoned experts who know all the ins and outs of dealing with banks and card networks at every stage of the chargeback process. In many cases, professional chargeback management teams can win two or three times as many cases as merchants who handle chargeback representment in-house. With the right company working on your behalf, you'll be able to win chargebacks and learn valuable insights into how to prevent them from happening in the first place.
Can a Chargeback Be Denied?
What Are the Grounds for a Chargeback?
- The Best Tips for Credit Card Dispute Fraud Prevention
- How to Handle Wells Fargo Chargebacks
- MATCH List and Terminated Merchant File (TMF)
- Difference between Chargebacks and Disputes
- The Growing Threat of Prepaid Card Fraud
- Merchant Chargeback Policies
- Visa Installments Takes on Buy Now, Pay Later
- Striking the Right Balance With Fraud Allowances
- A Merchant's Guide to Mastercard Installments
- Sending Chargebacks to Debt Collection