Like a monster from a cheesy horror movie, some chargebacks just won’t die. You might think it’s over when you represent a disputed transaction with compelling evidence and the issuer takes your side, but in some circumstances the cardholder can prolong the dispute and ask the card network to settle the matter.
This final stage of the chargeback process is known as arbitration, and each card network has its own way of handling it. While most chargebacks won’t make it this far, it’s important for merchants to be prepared for the possibility. What should merchants expect from the Mastercard chargeback arbitration process?
Experienced merchants, however, know the importance of using second presentments to fight invalid and fraudulent chargebacks, which extends the dispute process to give the issuing bank a chance to review the merchant’s evidence.
For chargebacks that reach this stage, the issuing bank’s decision is usually final—but that isn’t always the case. The card networks—Visa, Mastercard, American Express, and Discover—get the last word on contentious disputes.
If the merchant’s chargeback representment fails to convince the issuer, or if the cardholder is able to provide the issuer with additional evidence for their claim, the case may be put up for arbitration and the merchant will have to decide whether they want to keep fighting. It’s not always an easy decision, as dealing with arbitration can cost a considerable amount of time and money.
Each card network has a well-defined chargeback process based on the cardholder dispute laws laid out in the Fair Credit Billing Act. They also have some latitude to build on the framework provided by the legislation, which means that every card network’s chargeback process is similar, but slightly different in the details. Under the Mastercard network, the chargeback process unfolds as follows:
Some Mastercard reason codes (4808, 4870, and 4871) proceed directly to arbitration if the issuer does not accept the merchant's representment.
Starting from the date the chargeback representment was filed, issuing banks have 45 calendar days to file a pre-arbitration chargeback.
Merchants should check with their acquirers for the exact amount of time they have to respond to pre-arbitration chargebacks.
Always review the latest Mastercard documents to verify timeframes. They can change when new guidelines and mandates are issued, and some chargeback reason codes may have their own special response deadlines.
Once a dispute reaches the arbitration stage, a representative from Mastercard will review all of the evidence from both parties and make a final decision about who is liable. This decision is absolutely final as far as the chargeback is concerned. The only way to escalate the dispute further is for the losing party to file a lawsuit in civil court.
If a dispute goes to arbitration, it means that the issuing bank has already reviewed and rejected the merchant’s best evidence. Before pursuing arbitration, you should take a realistic assessment of the facts of the dispute, the evidence in your favor, and your chances of winning. It’s not worth spending $500 to fight a dispute on principle alone. When chargeback representment fails, it’s usually best to cut your losses, move on, and figure out how to avoid similar chargebacks in the future.
That said, there are circumstances where the dispute involves a significant amount of revenue and the evidence is difficult for issuers to parse in the limited time they have to review representments. If you are certain that the facts are on your side and you’re willing to risk the $500 fee, you have every right to ask for the card network’s impartial verdict.
Arbitration is an important and necessary part of the chargeback process, but due to its high potential cost, it’s one that merchants are better off avoiding whenever possible.
If you find yourself frequently faced with pre-arbitration chargebacks, it may be a sign that you aren’t submitting your most compelling evidence when you engage in chargeback representment.
Always remember to review your chargeback reason codes to see what documents are required to refute the cardholder’s claims, and be sure to practice good record-keeping habits to ensure you always have the right documents on hand. If you’re following best practices for analyzing, managing, and fighting chargebacks, you should be able to avoid Mastercard’s pre-arbitration chargebacks and the difficult choices they pose.
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