Credit Card Chargebacks and Merchant Chargeback Rights 2021
Table of Contents
- What is a Credit Card Chargeback?
- Should Merchants Dispute Chargebacks?
- What are the Key Protections?
- What are Merchant Chargeback Representment Rights?
- What are the Credit Card Chargeback Time Limits?
- What is a Chargeback Ratio?
- Are all Chargebacks Bad?
- What are Considered Legitimate Chargebacks?
Credit card chargebacks were created to help protect cardholders during occurrences of credit card fraud. Merchants also have rights in the process, however, and it is important that they know them so that they can protect themselves from friendly fraud chargebacks.
What is a credit card chargeback? It is a forced reversal of a transaction instigated by the cardholder and executed by the cardholder's issuing bank. During this process, merchants can dispute the chargeback in a process called representment.
It's important that you understand credit card chargebacks and merchant chargeback rights in 2021. This guide will help you do just that.
What is a Credit Card Chargeback?
As a merchant, you might feel like the chargeback process is weighted against you. It can seem as though, with just a single call to his or her bank, a customer can snatch back the money from a completely legitimate sale, leaving you with the burden of proof to gather and present evidence that you're entitled to keep the proceeds from that transaction.
On top of that, some customers will file chargebacks simply because they feel like it's easier or more convenient than asking the merchant for a refund, and some people will explicitly attempt to leverage the workings of the chargeback process to defraud you. While consumer protections are undeniably important, what about the rights of honest merchants?
Should Merchants Dispute Chargebacks?
Knowing what they are –and what procedures and policies you're obligated to follow, in order to maximize your options and strengthen your position, when engaging in chargeback representation – can go a long way toward reducing the number of chargebacks that ultimately succeed against you.
What are the Key Protections?
Chargebacks originated as a way to help consumers feel more confident about using credit cards to pay for goods and services. However, the process is designed to work fairly for consumers and merchants alike.
The major card networks define the rules for chargebacks, and they have a vested interest in making sure consumers and merchants – both of whom are their customers – are treated equitably.
With that in mind, there are several key protections in the chargeback process that apply to merchants.
- Chargebacks cover the purchase price only. A bank can issue a chargeback for a full or partial amount of a transaction, and can even issue multiple partial chargebacks, but the total amount for all chargebacks related to a single transaction cannot exceed the original amount of the purchase. In some cases, relevant shipping costs and surcharges may be included in the chargeback total.
- Cashback can't be charged back. Chargebacks on debit card transactions where the customer received cash back cannot include the cash back amount in the chargeback total.
- For late deliveries, a return must be attempted first. If a customer disputes a transaction because the product they ordered was delivered late, they are required to attempt to return the product for a refund, before they can file a chargeback.
- There's a fifteen-day waiting period for chargebacks on returned items. When a customer returns an item to the merchant, their bank cannot file a chargeback until fifteen days after the return. The purpose of this rule is to give the merchant plenty of time to issue a refund.
The card networks and banks all have processes in place to review chargeback attempts for validity before they proceed. They may, for instance, review the purchase and claim history of the customer requesting the chargeback to look, for signs of possible fraudulent activity. Invalid chargeback attempts may be quashed before the merchant receives any notification about them.
Another important component of merchants' rights are the reason codes attached to chargeback notifications. A reason code specifies the justification for the chargeback and can provide guidance, as to how you, the merchant, can effectively challenge it. A code may also direct the customer to first try to work with the merchant to resolve their complaint, which the issuing bank is supposed to verify, before proceeding with the chargeback.
What are Merchant Chargeback Representment Rights?
When a chargeback that appears valid to the bank has been filed, your most important right as a merchant is your right to contest it, through the process of chargeback representment.
You always have the right to fight a chargeback, and to take it to arbitration, if necessary. From a practical standpoint, fighting chargebacks gives you a chance to recover lost revenue, but there's a moral element to it as well. When merchants roll over and accept fraudulent or illegitimate chargebacks because they don't want to bother with the hassle of contesting them, it only encourages more unscrupulous consumers and scammers to see chargebacks as a way of getting free money or merchandise.
Fighting a chargeback can take time and effort. You're required to present compelling evidence, to show that the original transaction was legitimate. Maintaining, organizing, and locating the documents you need to fight a claim can be difficult.
Having the assistance of knowledgeable experts can give you a tremendous advantage, in succeeding at chargeback representation. Be sure whoever you work with has knowledge of the various chargeback reason codes, as well as the arguments and evidence that can be used to dispute them. By allowing someone else to take on the work of presenting the evidence and communicating with the banks and card networks, you can focus on running your business.
What are the Credit Card Chargeback Time Limits?
On average, a consumer can file a chargeback on a transaction within 60 and 120 days, depending on the credit network and the chargeback reason code.
Following that, merchants have around 45 days to dispute the chargeback, again depending on credit network and reason code.
Card networks like Visa, Mastercard, and American Express set these rules in place to facilitate the process between issuing and acquiring banks.
Merchants must remember that a chargeback sent to their acquiring bank is considered legitimate until challenged and overturned. If you miss your window of opportunity, then you will automatically lose out.
It's only if you successfully dispute the credit card chargeback that you avoid both the loss of the funds but the fees as well.
What is a Chargeback Ratio?
Are all Chargebacks Bad?
What are Considered Legitimate Chargebacks?
Rights only help you if you exercise them. Don't get pushed around by fraudsters—know your rights as a merchant and use them to fight illegitimate chargebacks and keep the revenue you've earned.
In order to fight chargebacks and your recover lost revenue, you must first understand how chargebacks are filed and how the dispute process works. Our newest guide, The Smart Way to Fight & Recover Chargebacks, will help you to fight and recover your chargebacks the "smart" way.