by Ben Dwyer The chargeback process is designed to increase consumer confidence — it’s very easy for credit card users to dispute charges, while businesses and banks have to do all of the legwork to figure out whether or not a transaction is legitimate.
From a business’ perspective, however, chargebacks can often be a costly hassle.
The burden of proof to show that a customer has been rightfully charged falls on you, and when consumers successfully dispute charges, you lose both the product sold and the revenue from that sale.
Even when a dispute is unsuccessful, the acquiring bank will withhold payment for any chargebacks until the matter is resolved. Add in the fees charged by banks and processors, and even disputes which turn out in your favor can be expensive. This article aims to give more details about chargebacks, why they happen, and how you can prevent them.
- What is a Chargeback?
- The Chargeback Process
- Pre-Arbitration Advice
- Winning a Chargeback
- Preventing Chargebacks
- Chargeback Fees
- Chargeback Fraud
- Signature Removal and Chargeback Prevention
- Amex Temporary Chargeback Rule Updates (in effect til April 2018)
- Chargeback Management Companies
What is a Chargeback?
Chargeback is the term used when a customer disputes a charge on her credit card bill. Generally, chargebacks will happen for one of several reasons:
- A clerical error, such as a customer being double-billed or being billed for an incorrect amount
- Customer dissatisfaction, such as not receiving a product or receiving a product different than what was paid for
- A customer not recognizing a purchase, especially if the business name that appears on her bill differs from the actual name of the store
- Fraud — when a customer claims she did not authorize a purchase or a purchase was made as a result of identity theft
For most transactions, customers have 120 days from the sale or when they discovered a problem with the product to dispute a charge.
The bottom line here is that whenever customers feel that they have been charged for something they shouldn’t have, they can file a dispute with their bank, which begins the chargeback process. The entire process will be detailed in the next section, but it’s worth noting here that resolving these disputes can sometimes take more than two months — PayPal, for example, advises that the whole process can take up to 75 days. During this time, the revenue from the disputed sale is withheld from your account.
Whenever a chargeback is initiated, you’ll receive a code from the issuing bank that gives a reason for the dispute. Some of the most common Visa and MasterCard chargeback codes are listed below. Once a customer has disputed a charge, a your acquiring bank will begin going through a specific procedure to resolve the issue.
Visa Chargeback Reason Codes
In 2018, Visa consolidated its list of reason codes into 4 categories: fraud, authorization, processing errors, and consumer disputes. This image shows how the previous reason codes are assigned in the new consolidated categories.
The individual codes are:
- 10.1: EMV Liability Shift Counterfeit Fraud
- 10.2: EMV Liability Shift Non-Counterfeit Fraud
- 10.3: Other Fraud – Card Present Environment
- 10.4: Other Fraud – Card Absent Environment
- 10.5: Visa Fraud Monitoring Program
- 11.1: Card Recovery Bulletin
- 11.2: Declined Authorization
- 11.3: No Authorization
- 12.1: Late Presentment
- 12.2: Incorrect Transaction Code
- 12.3: Incorrect Currency
- 12.4: Incorrect Account Number
- 12.5: Incorrect Amount
- 12.6: Duplicate Processing / Paid by Other Means
- 12.7: Invalid Data
- 13.1: Merchandise / Services Not Received
- 13.2: Cancelled Recurring
- 13.3: Not as Described or Defective Merchandise / Services
- 13.4: Counterfeit Merchandise
- 13.5: Misrepresentation
- 13.6: Credit Not Processed
- 13.7: Cancelled Merchandise / Services
- 13.8: Original Credit Transaction Not Accepted
- 13.9: Non-Receipt of Cash or Load Transaction Value
Mastercard Chargeback Reason Codes
Mastercard continues to have a long list of possible reason codes, as follows.
- 4802: Requested/Required Information Illegible or Missing
- 4807: Warning Bulletin File
- 4808: Requested/Required Authorization Not Obtained
- 4812: Account Number Not On File
- 4831: Transaction Amount Differs
- 4834: Duplicate Processing
- 4837: No Cardholder Authorization
- 4840: Fraudulent Processing of Transactions
- 4841: Cancelled Recurring Transaction
- 4842: Late Presentment
- 4846: Correct Transaction Currency Code Not Provided
- 4847: Requested/Required Authorization Not Obtained and Fraudulent Transaction
- 4849: Questionable Merchant Activity
- 4850: Installment Billing Dispute
- 4853: Cardholder Dispute—Defective Merchandise/Not as Described
- 4854: Cardholder Dispute—Not Elsewhere Classified (U.S. region only)
- 4855: Goods or services not provided
- 4857: Card-Activated Telephone Transaction (fraud only)
- 4859: Change to Addendum, No-show, or ATM Dispute
- 4860: Credit Not Processed
- 4862: Counterfeit Transaction Magnetic Stripe POS Fraud
- 4863: Cardholder Does Not Recognize—Potential Fraud
- 4870: Chip Liability Shift
- 4871: Chip/PIN Liability Shift
The Chargeback Process
Once a customer initiates a chargeback, the issuing bank sends the transaction in question back to your acquiring bank — effectively reversing the sale. The cardholder’s account is credited for the amount of the transaction, and your account has the funds from the sale in question withheld until the matter is resolved.
Every acquiring bank has its own specific procedure for handling chargebacks, but they’re all governed by the framework set up by the card brand. Acquiring banks will generally let you know exactly what’s expected, and it’s important to follow these procedures to the letter to protect your chargeback rights. Discover, for example, prohibits businesses from contacting customers who have disputed a transaction.
Another VERY important note: a customer’s bank will refund the balance of a disputed transaction as soon as the customer initiates a chargeback. You should NOT refund the customer on your own!
Acquiring banks deduct the amount of the disputed transaction from your account, at which point it’s up to you to either accept the chargeback or to plead your case. At this stage, and in most cases (unless the business has violated the terms of service of their card association), you will be able to present evidence to the acquirer proving that the transaction in question is legitimate. The evidence required will be dependent upon the reason for the chargeback. If this evidence convinces the acquiring bank that a customer was rightfully charged, the acquirer will submit the transaction to the issuing bank a second time.
At this point, the issuing bank will either agree with the acquirer and reject the cardholder’s dispute or disagree, in which case you can either accept this outcome or send the transaction to the card association for final arbitration. If the card association decides in your favor, the cardholder will be billed for the appropriate amount and you will receive payment. If the decision goes in the cardholder’s favor, the cardholder will retain the credit already issued by her bank and you will not be paid for the amount of the transaction.
If any products were delivered, you will have to accept the loss of that good or service as well. Again, the banks and the card association take care of moving all the money during the chargeback process — if a customer’s dispute is upheld, you should not issue a refund. Likewise, if you win the chargeback dispute, you should not bill the customer a second time — you will be paid for the original transaction by the acquiring bank.
12B Letters
Some companies, like First Data (now Fiserv), refer to a retrieval request as a 12B letter. A retrieval request (or 12B Letter) is one of the first steps in the overall chargeback process. During a retrieval request, the issuing bank (the bank that issued the customer’s card) will contact the acquirer for more information about the disputed transaction.
Retrieval requests incur a fee each time they occur, and the costs vary by processor. In your CardFellow quotes, the fee will be listed as “Retrieval Fee” under the heading “Per-Occurrence Fees.”
Note that retrieval fees are different than chargeback fees. If the dispute progresses from the retrieval request stage to the chargeback stage, you’ll typically also incur a chargeback fee. Many processors charge a smaller fee for retrievals than chargebacks.
Pre-Arbitration Advice
If you dispute a chargeback initially and the issuing bank sides with the cardholder, you’ll likely receive a notice called Pre-Arbitration Advice (if the transaction was made with a Visa card) or a 2nd Chargeback letter (if the transacation was made with a Mastercard.) This letter will inform you that the bank has initially sided with the cardholder and asks if you’d like to pursue final arbitration directly with the credit card company. You can choose to decline arbitration, which will mean that the chargeback is upheld, or you can choose to pursue arbitration, where the credit card company will determine who wins the chargeback. Arbitration with the credit card company is final – once it makes a ruling, there are no further appeals. Additionally, going to the card brands for abritration usually incurs a filing fee of several hundred dollars. (This fee is separate from the amount of the disputed transaction.)
There’s no one right answer when responding to a pre-arbitration notice. Determining whether to pursue arbitration or decline in the pre-arbitration phase is a situation-specific decision. You’ll need to assess the pros and cons for your business if and when the situation arises.
Read more about what happens when you get a chargeback.
Chargeback Fees
Unsurprisingly, the process outlined above costs merchants money in the form of chargeback fees, and businesses have to pay regardless of whether or not they win the dispute.
First up is the nominal fee charged for retrieval requests. These requests are made by issuing banks when a cardholder asks about or disputes a charge. Processors vary on what they charge, but this fee tends to fall in the range of $5-15.
If the information obtained in a retrieval request does not satisfy a customer or the customer’s issuing bank, the dispute moves to a chargeback and you’ll be hit with a chargeback fee. You have to pay the chargeback fee even if the cardholder’s claim is rejected, and even if the chargeback is a result of fraud or identity theft. This fee can range from $15 — 40.
As mentioned in the section above, if you take a dispute to the arbitration stage, you risk paying in the neighborhood of $400 in various fees to the card brand.
On top of all of these fees, both Visa and Mastercard have a strict limit on the total number of transactions that can be charged back before additional fines and penalties are levied. A business whose chargebacks exceed a 1% (Mastercard) or 0.9% (Visa)of its total sales volume (the dollar amount, not the number of transactions) becomes subject to a chargeback monitoring program administered by the card brand, which is accompanied by a $5,000 fine. At this point, there is a very good chance that the account will simply be terminated by the bank or credit card processor.
Preventing Chargebacks
With the cost associated with chargebacks, businesses should take steps to protect themselves. Here are some simple steps that can help prevent chargebacks:
- Respond Quickly
Respond to retrieval requests and chargebacks promptly. Banks will simply process a chargeback if you don’t respond to the dispute in the allotted time. - Deliver Great Customer Service & Clearly Post Return Policies
Make it as easy as possible for customers to get customer service, and make the return policy clear at the time of the transaction. Many customers will go to a business to resolve a dispute first, only initiating the chargeback process if they cannot get assistance or a refund. A direct refund to a customer is always less expensive than if a customer wins a chargeback. - Swipe Cards When Possible
Card-present businesses can prevent chargebacks by requiring that cards be swiped, and get a signature whenever possible. This makes it easier to prove that the cardholder is the one using the card — so easy that, beginning in April, Visa will reject chargebacks with certain fraud reason codes if the card was electronically read. - Use Address Verification Service (AVS)
Consider using the Address Verification Service anti-fraud tool. AVS works by comparing a customer’s name, address, and zip code with the information on file at the credit card company. Mismatches can indicate that transactions should be declined or that you should proceed with caution and require additional information. Matches indicate a greater likelihood of a valid transaction. - Obtain CVV/CVC Codes
Another suggestion to prevent fraud is to require customers to enter the 3 digit security code on the back of their card when ordering products online. This helps to ensure that the person using the card has the physical card in hand and has not stolen an account number. - Use Verified by Visa & Mastercard SecureCode
One more step to prevent fraudulent online purchases is to take advantage of Verified by Visa or MasterCard SecureCode — both programs that require customers to enter a password when using a card online. - Communicate
Communicate with customers. If customers know the status of their orders, they will be less likely to dispute a charge. - Ensure Truth in Advertising
Advertise honestly and have clear terms of service — these can prevent customers from disputing transactions because the product they purchased was not as described. - Avoid Technical Errors
Take measures to avoid clerical or technical errors. Ensure that staff is properly trained and that there are refreshers if you change policies or upgrade equipment. - Abide by Card Association Regulations
Follow the terms of service set by the card brands. Any compliance violation can cause a merchant to lose its chargeback rights.
Chargeback Fraud
In addition to the prevention measures outlined above, you should be aware of chargeback fraud and how to protect yourself. One of the fastest growing types of chargebacks is what’s known as “friendly” fraud — when consumers purchase products with the intent of initiating a chargeback in order to get free merchandise.
The person committing the fraud will often claim that a product was not delivered, was not as described, or that they simply did not order a product. This type of fraud has grown over the years and is prevalent for card-not-present transactions. Check out our article on friendly fraud for a thorough explanation and steps you can take to protect yourself and your business.
Unfortunately, chargebacks are one of the “costs of doing business” when accepting credit cards. However, by taking steps to ensure that customers are informed and satisfied with their purchases, and putting measures in place to prevent credit card fraud, merchants can greatly reduce exposure to chargeback risk — and all of the accompanying costs.
Signature Removal and Chargeback Prevention
In the spring of 2018, all for major card brands announced the removal of signature requirements for credit card transactions. Businesses no longer need to collect customer signatures at the time of a transaction. While signed receipts weren’t a guarantee of success in fighting a chargeback, they were often one piece submitted as evidence. Some businesses wonder what impact signature removal will have on chargebacks, or even question if they should continue to collect signatures.
We spoke with Chargebacks911, a risk mitigation firm that helps online merchants optimize profitability through chargeback management. Co-founder and COO Monica Eaton-Cardone offered insight into the change.
How does the removal of signature requirements impact chargeback defense?
It seems like removing the signature requirement for a card transaction would make chargeback defense harder at first glance, but it probably won’t have a big impact, to be honest.
Signatures were already a very lax security method, and they were used inconsistently. Some [businesses] are strict about verifying signatures, but most are rather inconsistent. Even then, the signature was never an airtight piece of evidence for a chargeback, so cutting that requirement won’t take away much from the current situation.
The chip-and-PIN method, which is already in place in other markets outside the US, is much more effective as a fraud prevention tool than a signature.
What documents can a business provide to fight a chargeback now that they may not have a signed receipt?
Unfortunately, there’s not really a single “silver bullet” that will work in every situation; evidence needs to be tailored to the case at hand. If you’re shipping an item, for example, then delivery confirmation and asking customers to sign for high-ticket purchases can be one of your best pieces of evidence. But, in brick-and-mortar transactions that don’t involve shipping, you’ll need to get more creative. You could use photos of the customer in possession of a product, or records of email conversations with the customer.
Can a business still choose to require a signature from cardholders even though it’s not required by the card brands?
Yes; [businesses] can still choose to collect signatures to verify transactions if they want. Of course, signatures are still mandatory for any [businesses] who haven’t yet upgraded to chip card reader, too.
Amex Temporary Chargeback Rule Updates – Expired
In June 2016, American Expressed announced temporary updates to its rules about chargebacks. Effective from the end of August 2016 until April 2018, businesses were not liable for fraudulent counterfeit Amex transactions under $25.
By the end of 2016, Amex also planned to limit the quantity of chargebacks for which a business can be held liable. The plan for the end of 2016 is that a business can only be liable for the first 10 chargebacks on any given card. Cardholders can still dispute fraudulent transactions, but the liability will fall to the issuer (not the business) for any chargeback over 10.
These rules were in place until April of 2018 and are designed to help businesses avoid drains on their cash flow so that they can upgrade to EMV chip card processing equipment.
Winning Chargebacks
If you do win a chargeback, Eaton-Cardone says that the standard procedure is that you’ll receive the funds back automatically, less the chargeback fee. As for timing, she adds, “The funds should be released right away, with the only real delay being the time required to work through the ACH transaction clearing process.”
Chargeback Management Companies
While businesses can technically dispute chargebacks and manage the process themselves, there are companies that offer to do it for you. Costs and services provided vary by company, but if you get a lot of chargebacks, aren’t familiar with the dispute process, or would just prefer professional help when dealing with chargeback issues, it may be worth your time to look into chargeback management services. We have an article on what to expect, what to ask about, and more.
Check it out here: Considerations When Choosing a Chargeback Management Company.
by Monica Eaton-Cardone
Thanks for the information. For the first time in 12 years I’ve had a chargeback. I own an auto repair shop with a 4-4.5 star rating no BBB complaints. This guy lied about the cost, mileage driven, and time after repair. I submitted all the invoices and signed receipt to my bank. The dispute is ‘ defective goods /or services.’ This is such a general category that it would be difficult to be definitive. Business is tough enough and it’s people like this that we as merchants need a forum to expose them to other businesses.
Brad, You are absolutely correct. I too had a similar situation. My customer had a boat, needed a new engine. She referred the matter to her insurance company who agreed to pay up to 5000.00 for the the repairs and new motor. The cost was 6400.00. The insurance company told her she would be responsible for the 1400.00 extra. We told her it would be 1400.00 extra that she would have to pay. She initially told us she would not pay 1 cent more above what the insurance would pay. We explained that we would not take on the job. She agreed to pay the 1400.00 if we finished the job, which we did, she paid the 1400 on her Visa, took the boat, drove it 10 miles across lake Ontario. Got to her destination and filed a charge back against us claiming we didn’t put spark plugs in her boat and it wasn’t working properly. We tried to contact her to see what the problem was, she would not return our calls except to make us aware through a third party that said, she told us she wouldn’t pay 1 cent more than the insurance company paid and she wasn’t kidding. How do you defend against this type of criminal activity ?
If the credit card companies are so determined to go after dishonest merchants, then they should also be inclined to go after dishonest card members. This is fraud and theft against a merchant. Will anyone do anything about this? No! because everyone thinks businesses have lots of money.
Chris,
In Florida, I would (as I have in the past) file an immediate mechanics liem on her boat/engine, for failure to pay for services performed. Sooner or later, if she wants to sell or transfer the vessel, she will have to deal with it.
That customer committed theft of services. You could contact an attorney or even file a police report depending on where you live.
Hi, what happens if I issued a credit after a chargeback has already occurred. How do I get my money back?
As you probably already know, the customer’s issuing bank will initiate a refund during the early stages of the chargeback process. By also refunding transaction the customer receives double her money back, which is why it’s important not to issue a refund for a disputed transaction.
It can be difficult to recoup a refund issued in response to a chargeback. The best course of action is to contact your processor to inquire about the possibility of recovering the funds.
It should also be noted that the issuing bank will redeposit funds if you win the chargeback claim. In this case, if it was your intention to refund the customer originally, you will effectively be made whole.
What is your analysis of: PNC bank will not permit myself as credit cardholder to dispute a transaction for services because they are after the point in time that they define using the concept of “authorization”. The disputed services can be described as the following: not what was bargained for, deceptive in attracting me to even order, claiming their services were something that they were not.
Do you have any information or opinions in regards to processors holding reserve accounts? Currently, my processor is holding 5% of all my sales supposedly to cover charge backs. Some of this money has been held for almost 2 years. How long can they hold it for? And can it cap? Thank you!
Hi Jennifer,
What you’re referring to is called a “rolling reserve” and you’re correct that processors sometimes do it to cover potential chargebacks. In general we suggest merchants don’t agree to a rolling reserve unless they have to, but sometimes it’s the only option that a processor will offer. They can hold the funds for the length of time specified in your original agreement. A cap would also be according to that agreement. It all should have been disclosed in your original terms with the processor. I hope this helps!
Hi Ellen.. it only said they reserved the right to hold 5%, but it doesn’t have a cap. There is no length of time specified and no dollar amount to cap it at. Do you know if there’s laws against that? I don’t mind the reserve, but it should cap somewhere. They’ve been holding 5% for the whole two years we’ve been in business.
Hi Jennifer,
Unfortunately, I can’t really help with the legal aspect. That’s something you’d need to contact your lawyer or the processor directly to discuss.
Have you signed up for CardFellow to see what kind of quotes you get through our processor marketplace? It may be worth looking into, and we’re intimately familiar with the agreements that processors we work with offer to our clients. Putting in your business info for quotes is quick, free, and completely private, so you won’t get unsolicited sales calls. There’s no obligation, you can just take a look to see what other pricing is available to you and see if it might make sense for your business. Just a suggestion!
What if a regular client gets a new credit card and when he gives you his new card number over the phone, he transposes the last few digits (an honest but not uncommon mistake.) The transposed number passes the Luhn test so it was not automatically be flagged as an invalid number. The charge was over $4,000. Who is responsible for checking that the individual that owns the credit card account is the right person? Shouldn’t the issuing bank make some attempt to match the billing address or at least the zip code before allowing the charge on the account of the unsuspecting cardholder? When the error was discovered, the client gave the correct credit card number and the charge went through, but not before the bank had accused the merchant of fraud, debited the chargeback from the merchant’s account and imposed significant chargeback fees. If a chargeback results from an honest error on the part of a good client who inadvertently gave the wrong card number and the client subsequently makes good on the charge, should the merchant be held responsible and subject to chargeback fees?
Hi Holly,
For specific situations like this, it’s best to contact your processor or bank directly so they can assist you. In the future you may be able to take advantage of fraud prevention tools like Address Verification Services that allow you to compare the address of the buyer with the address on file for the credit card, which could help with these type of unusual situations.
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What if you don’t have the money in your account for a charge back? In other words, the chargeback amount is $5000 and you only have $3200. What happens in this scenario? Does the processor kick you out and put you on the “Match” list?
Mike, in the chargeback process the processing bank reimburses the issuing bank for any disputes and chargebacks. It’s then up to the processing bank to recoup funds from its merchant. Exactly what happens if the merchant does not have enough funds to cover the chargeback is a tough question to answer specifically because the actions of the processing bank will depend on the details of the individual situation. For example — fraudulent activity, the merchant’s processing history, the merchant’s industry and other variables will all impact the method(s) used to recoup losses, if any.
Whether or not to list a merchant on the Terminated Merchant File (TMF) is left to the discretion of the processing bank, but it’s virtually inevitable the bank will opt to list the merchant on the TMF if it suspects fraud is involved.
I suggest contacting your processor to discuss the situation if you’re expecting a chargeback that you won’t have sufficient funds to cover. Being proactive is always the best course of action when dealing with chargebacks.
Thanks Ben, I had to submit documents, of the services that were rendered, to the Risk Department of my merchant services. They then submit those docs to the cardholder’s bank for review. My merchant services told me today that the cardholder’s bank is siding with the cardholder, and there is nothing I can do? I now owe 4700. I asked my merchant services, “I thought there was an arbitration process?” They said, case is closed you owe us since we paid them, if you can’t pay us then we will send you to collections…you can go after the cardholder for your money. Does this sound correct?
Hi Mike, I’m sorry to hear about your situation. Many aspects of the chargeback process are weighted in the cardholder’s favor. There isn’t so much an arbitration process as there is an information gathering period and then a decision made by the issuing bank, which is what happened here. Your acquiring (processor) did have to pay the issuer if there wasn’t sufficient fund in your account when it attempted to draft the money to cover the chargeback.
What you’ve described is the chargeback process. However, you may want to enlist the advice of an attorney that works in bankcard law/chargebacks, or a service that helps business mitigate chargeback risk and respond to chargeback claims. I wish you the best going forward.
Hi, does anybody know how long it takes Mastercard to rule for arbitration cases?
Hi Steve,
You could try checking out MasterCard’s chargeback and arbitration guide.
I ordered a hat from a third party website and when the hat arrived it was not at all what I ordered, wrong team, not fitted, etc. When I contacted the website, they refused to take the hat back and said to get what I originally ordered I had to order a new one. Can I file a chargeback with my bank?
Hi Liz,
I’d suggest contacting your bank directly and discussing the issue.
Hi Liz,
Yes of course you can file a chargeback as long as you can prove that the specifications of the hat you received was different from that of what you have ordered.
I’m a business owner and I was wondering if I can avoid charge backs by keeping no money in the merchant account? Lets say as soon as there is $50 in the merchant account I transfer to a different bank or different account? Doesn’t seem like the customers bank would 1 know what bank had the money or 2 know what account it was in. Would it be necessary to move all the money to a different bank or will a different account suffice?
Hi David,
We can’t advise as to the legality of doing something like that, but remember that there are a variety of routes the processor can take if you don’t have the money in your account. They can take legal action against you, close your processing account and add you to the Terminated Merchant File so that it’s difficult for you to secure processing services again, etc.
@David King,
This will not work for several reasons:
1. The next time you submit transactions for processing, your card processor will simply net the amount of the chargebacks from your settlement and send you the difference.
2. They could send you an invoice for the charge back amount. What would you do then? Refuse to pay?
3. IF they think there is a problem with clearing chargebacks, they could decide to build a reserve ratio. Doing so results in: whenever you submit transactions they will not pay you for them based on some formula.
3. You as a merchant can potentially be black listed and not be allowed to accept cards as a form of payment.
If our swipe machine isn’t working is it ok to take a photocopy of the customer’s card? To prove that we did have the physical card when the payment was made?
Hi Megan,
I wouldn’t recommend it, as you may run into compliance issues for having the full card information stored at your business. Additionally, it likely wouldn’t be considered when reviewing chargebacks.
If a customer wins a chargeback (which is not hard to do with Visa and “friendly” fraud) can the merchant take the customer to small claims court to get the merchandise back? Our customer bought three items, then claimed one was defective. We are an antique mall selling AS IS and since the item had a scratch on in after the customer got it home he did a full chargeback for all three items. Didn’t matter to Visa we are used furniture store selling AS IS or the scratch was not mentioned until after he got it home, after he loaded it into his vehicle. From what I have learned their should be a class action law suit against Visa.
Hi Shannon,
I’m sorry to hear about your troubles. Unfortunately, as we’re not lawyers, we can’t give legal advice on avenues to pursue. In some cases, it may not be worth a business’s time or money to try suing customers, but if you want to know your options, I’d suggest consulting a licensed attorney in your state. There are business lawyers with experience in fraud and chargebacks who would be able to advise you more thoroughly.
If this was a face to face transaction and your receipt was signed by the card holder with disclosure on it that what you are selling is AS-IS, then you as a merchant has a good chance of winning the case. The customer had the chance to inspect the product before completing the sale.
In my 40+ years in the retail music business, I have just received my first chargeback claim.
The customer agreed to return an electro-acoustic instrument she claimed to be humming, and the pickup was hot (dangerous?!). The item was for her son who used it. We asked her to return the item so we could test it ourselves. She took nearly 2 months to return the item. Communication was polite, professional and helpful. She seemed satisfied with this.
We thoroughly tested it, and found nothing wrong with it. We informed her of this but got no reply. I went to a professional audio engineer because I wanted to assure her that this was the case. He tested it and found no problems. I informed her of his test and asked her to contact the professional engineer to find what precisely was going on with the system her son was using (as this was likely the problem), she did not reply or contact him. I tried calling the number she left, no answer. This was in November 2015. I thought she must be busy as it was near x’mas, so I waited for her to reply. On the 31 Dec (New Year’s Eve) I received a chargeback claim from the bank.
She bought 5 items from our store in person, but only had issue with one and returned only that item. She is now claiming the total amount for all 5 items bought.
I have given my evidence, with further formal evidence to follow.
The problem she described is widely known within the music industry. If you have any experience in this business you would know it’s much more complex than just a ‘faulty item’. Many of our customers are local, many are professional musicians, and a few have bought this same item. We have never had any returns or complaints.
How people can think they can do this is beyond me. We are a small family run business already struggling.
How can we help to resolve problems if a customer is unreasonable and unwilling to even communicate?
I’ve read through a few bank chargeback procedures and they all state that the customer must have gone to reasonable efforts to communicate and try to resolve the issue with the seller BEFORE initiating a chargeback claim. It seems this is not true. They have simply ignored my evidence of non-communication from the customer and have not questioned the customer as to why. That means a customer can simply throw these chargebacks at sellers without any attempt at communication.
This is deeply troubling and depressing.
Sorry to hear of your troubles, Ann. The chargeback process can be frustrating. I know it’s probably not much comfort, but you’re actually a little ahead of some other people since you got the guitar back, even though the other items weren’t returned. I hope things are resolved satisfactorily. Good luck!
What happens if the bank account is closed once the chargeback is issued?
Hi Jeff,
If the bank account is closed, it doesn’t absolve the business of responsibility for the chargeback. The company can take other steps to get their funds, including pursuing legal action.
With most hotels, you can fill out a “3rd party credit card authorization form” to pay for a room. If I fill out this form and say I’m paying for someone’s room, they can check in and stay without ever having to present the physical card. So the card is never physically “swiped”.
Once I leave, I or the card holder can easily dispute the charge, and once they see the card was not physically swiped, there is almost always the charge back with little to no questions asked.
How do you think this should be handled/rectified?
Thanks!
Just because cards aren’t physically swiped doesn’t mean that the business will automatically lose a chargeback. There’s still an investigation process by the banks/card companies, and if the customer is found to be fraudulently submitting a chargeback, they may lose out, not the business. As with any card-not-present transaction, it would be wise to take as many security precautions as possible, including using fraud tools like Address Verification, Card Verification Value, etc.
The article says that if chargebacks exceed 1% of the total sales in dollars, the account can get flagged. Is that 1% over a particular period of time? 1% in a day? a week? a month? a year?
Hi Phil,
The 1% generally refers to a calendar month. More information is available here on MasterCard’s site.
What about chargebacks from a client made with stolen credit cards? Now I’m left with thousands of dollars in debt and I can’t pull any of that money back from the client.
Hi Al,
Sorry to hear of your troubles. For something like that, I’d definitely suggest contacting an attorney who has experience with chargebacks and merchant processing law. Good luck!
It depends on the bank. Scotiabank Visa refused to help us when we were sold a saltless water softener that didn’t work and it cost us thousands of dollars to undo what the system did. We didn’t ask for damages we just wanted our money back and we had returned the unit to the vendor. The Bank gave us their usual drivel that there was nothing they could do and they pulled every excuse in the book. There is no use going to small claims court because winning does not mean that you will get paid.
Hi, I had a customer that placed a chargeback on a $164 charge, I did not win the case and I agreed to pay the $500 pre-arbitration fees since the customer never returned the item. I lost it so I sued Visa in small claim court and VISA’s lawyer told the court that they do not have the money since they don’t charge it – they claim that Capital One (my credit card processing company) is holding my money including the $500 pre-arbitration fee, and the judge believed her, is that correct? Because Capital One is telling me that visa is holding my money – who should I go after? Who’s keeping the pre-arbitration fees?
Hi David,
For something like this, your best bet is to talk to a lawyer. Spark Pay (Capital One’s payment processing division) may be holding the funds, as generally Visa itself doesn’t get much of the costs of processing, but I can’t confirm that’s the case. I’d advise seeking legal counsel. Best of luck!
Having worked in the Industry, I can tell you that Visa is right. They don’t hold the chargeback or transaction monies. Either the cardholder’s issuing bank or your merchant bank is the one that has your funds. Most likely, the issuing bank, since you lost the arbitration case.
We packed a large order containing 13 boxes and wrapped the whole thing on a pallet. The customer arranged and paid for a shipping company to pick up and deliver across country to her location. The shipment arrived on her end missing one of the boxes. She emailed describing the pallet as being broken and suspecting something happened in transit. The missing box was the heaviest at 50 lbs. and had been positioned at the bottom and center of the pallet with the remaining 12 boxes around and over it, with the whole thing wrapped with film wrap. It seems evident that it got broken and was repacked somewhere while in transit. She initiated a chargeback for $2300, the value of the items in the missing box. I have provided all sorts of evidence supporting the fact that the shipping company failed and lost the box, including email from the customer herself to the shipping company looking for her box. How likely am I to win my case? And how much weight does never having any chargeback in 13 years of business has on the final decision?
Hi Helene,
Sorry to hear about this. Your best bet is to keep in contact with your processing company, but since the customer didn’t actually get the box, it might be difficult to win the chargeback.
Hi Ellen,
You keep on saying the same thing. The same response. Why are you here????
Denise,
I work for CardFellow, the company that wrote the article that you’re commenting on. I reply to questions that readers post in response to our article.
Since the customer was the one who arranged for the shipping company, you as a merchant have a good chance of winning the case.
We have recently filed a dispute with PayPal & our credit card company about a merchant. It’s over an item that weighs 300lbs. Do we really have to hang on to this large item until the dispute is resolved? We’ve asked the merchant to take it back and they are not willing to pay for shipping. This huge item sits in the middle of our living room in the way. It’s damaged, so of no use to us.
Hi Traci, no need for you to return the item. You just need to at least make an attempt to return or at least make the seller feel that the item is available for pick-up.
Hello! We are a merchant and have had 3 chargebacks from web orders over the last couple months which all seem to be fraudulent transactions. I understand in this scenario the card holder should be protected, they are victims and did nothing wrong but, we played by the book as well and have had to take the financial hit! Proper card checks, product delivery confirmation, etc. were all done on our end. Aside from the criminals that are now gone with the wind, in our opinion, Visa is the only one that should bear liability as they are the ones that approve the transaction! Is there anyway to appeal these cases with Visa? I have called and scoured the web and have found nothing. We are just a small mom and pop business and these three chargebacks are very large and threaten to put us out on the street! Any info is appreciated!
Hi Darren,
Your best bet is to contact and work with your processing company and/or your bank. They’re the ones that are more involved in the chargeback process. Good luck!
Hi. We are going through the same problem with one twist. We hired a company to take our online orders for us and therefore we have NO contact with the transaction at all. All we know is that we receive a notice from the company stating there has been an order placed and it was paid for and we need to provide the product. In this case, I believe the online ordering company should refund our money and if they want to repeal the chargeback, it is on them to deal with the credit card companies.
I have owned my business for 15 years and have been in the same type of business for 40 years. I pride myself on customer satisfaction. WE have never had any issues with our customers until the last 2 months. We sell Ford heavy truck parts and have kind of cornered the market – sell all over the US and overseas. Our first chargeback the customer purchased parts from us and in emails we explained that they were non-returnable because they were obsolete. Sold him in October, never heard a word. In late February, he emails saying that there were missing parts. He was in a real hurry in October, but waits 4 months to look at them. He disputed $1,200 and I forwarded all 15 pages of emails to PayPal. I figured that they lost the sale, I felt I should have won, but I lost.
Today another customer filed a dispute for purchased parts in October for $1,000. We never heard from this customer either by phone or email. It was 5 months and 3 weeks when they filed. He has the parts, they never returned them. So I just sent all paperwork to PayPal so they can forward them to his bank. I know we are right but after the last time, I figure his bank will side with him no matter what I say or do. Is there anything we can do after the customers’ bank has made its decision? Why are there no arbitration options after the bank makes the decision? Let’s be real, their bank will always side with them. PayPal tells me that customers do this all the time. How can I protect my business? At this rate I will be out of business. So much for protecting small businesses. Help!
Hello, we’re a merchant that was the victim of a credit card fraud. We’re fighting a chargeback on this issue. The receipt did not print out the the cardholder name (it’s left blank) but we do have actual 16 digit CC # plus expiration date.
With assistance from police, we’d like to do our own investigation but the credit card company (VISA) will not give us cardholder name nor address. How can we obtain this needed information? Will our police dept. have to subpoena VISA?
Hi PJ,
Something like this gets into very specific legal territory, so I’d suggest talking with a licensed attorney. Good luck!
You need to reach out to your merchant rep and/or your processing company to get that full card number. Still, without a customer’s signature, it will be tough. I would reach out to the cardholder (if possible) at some point and just remind them that any wrongful dispute over a certain dollar amount will be considered theft by chargeback, and a felony, and to be sure they want to continue down this road.
Oops, read that wrong. Yeah that will be tough to get.
Help!
So we got a VISA authorization for $6000.00 for a custom product but didn’t actually key the charge until 5 weeks later once said product was made and installed. Customer was happy and signed off on everything. The $6000.00 deposited into our account was removed by VISA for late presentment. Can we turn this over to collections and go after the homeowner even though he didn’t actually charge anything back? Advice would be greatly appreciated.
Hi Joe,
Unfortunately we can’t advise on something like that, as we’re not privvy to the details with the companies involved. The best thing to do would be to contact your processor and ask them how to proceed/get them involved. Good luck!
Ellen:
20 years ago I was a merchant for 7 years with my own mail order business doing (MOTO) transactions with a unbelievably low chargeback rate, lower than some brick and mortar stores. One fine day without notice we had our processor just pull our account out from underneath us and leave us hanging for 3 or 4 months while we secured a new merchant processing account. The processor claimed the rep who signed us up 6 years past checked off on the original application we would be 99% signed receipts in fact we were ALL mail order, telephone order – – – – did not matter to them our chargeback rate was so incredibly low.
I have read most of not all of the merchants stories on this site, and what I knew before with what I see on your site are all the same – – a bank and processing industry having HUGE bias against the merchant in chargebacks and banks/consumers ripping off a huge amount of honest merchants.
Honest merchants should be aware that it is common knowledge that if you ONLY accept cards physically (swiped), and you have printed on your receipts programmed in to the receipt machine the statement: ALL SALES FINAL – – NO RETURNS, you are protected. Merchants should talk to their processors/banks about this and attempt to get it IN WRITING. Banks or processors that refuse to provide this in writing should be dispatched immediately and negotiations with a new processor begun under these terms.
In my new business, I see a pump system were we are the “only game in town”, no competitors even close because no one can match our quality and our details. Everything I sell is custom built to order, takes at least a week, up to 4 weeks to build it, and my average ticket is about $5,000 and my clients are ALL wealthy individuals who can afford to pay by check. I refuse to accept ANY credit cards since we are again: mail, phone, internet orders without physically having the card in hand and I refuse to entertain processors/dishonest customers ripping us off on false chargebacks for a $5,000 ticket item. Not to mention the percentage the bank takes, not to mention hackers, chargeback fees, arbitration fees, and many other compliance issues.
I just read a report that 55% of small businesses in the USA refuse to take credit cards (word travels fast and these businesses are all aware of the crooked processors and horrible chargeback bias). It doesn’t take long for scores of small business owners to be ADDED to this 55% once they get screwed over by their cc processor – they forever have a bad taste for taking credit cards.
We love taking checks by snail mail, we deposit them, we wait for them to clear, we VERIFY with our bank regularly to see if any did not clear (they all do probably because of the high net worth individuals we deal with), meanwhile we are custom building the customers order and shipping them.
With old school checks, once we are paid – – WE STAY PAID. None of this credit card funny money, not really paid, chargeback foolishness.
Our business has noticed quite a few chargebacks that occurred via phone orders. – In EVERY case the CVV and AVS are exact matches and we only have shipped to the billing / shipping address and have won our funds back in every situation. – However, recently the card companies are now denying us even when we show proof that we have exact match on CVV, AVS, and the shipping address is the authorized address and addressed to the cardholder. – We are at a total loss here and this shift seems to have occurred in the last six months with the companies forcing to arbitration under penalty of fee if we lose the arbitration. – WHAT has changed with card issuers? This is proving to be a serious problem for us.
I initiated a Chargeback with Reason Code 83 but unfortunately couldn’t provide a cardholder letter; Acquirer declined my Chargeback with this reason even declined Pre-arbitation; What do I do, my customer is facing financial loss. Transaction MOTO Indicator is ECI07. Please assist.
Chargebacks must be handled with your acquirer and/or the bank(s) involved. If your chargeback has been declined, you may be able to appeal through your processor. Contact them directly for assistance.
Hi! We have a small online business. All is going smoothly until we were hit by 2 charge backs from customers who were so quick to call their banks and say that the item they received is not as described. We had many customers who received the same item and were happy with what they got. But these customers, they never even contacted us to say that they are not happy with what they have. We have a customer satisfaction guarantee in our website that states they can always return their purchase and we will give them a full refund. But these customers did not even try reaching out to us; not even once!
We have no problem refunding customers if they aren’t really happy with the product; but I find it unfair that I would have to go through the dispute process, pay the fees, when we could just have refunded the customer. Why is the bank not even verifying if the customer has made an honest-to-goodness attempt to reach out to merchant before lodging a dispute in their system?
I’m sorry to hear about that! Unfortunately, once a customer initiates a chargeback, the banks need to go forward with the process. I’d highly suggest working with your processor to resolve the issue. Good luck!
Hi, we have a boutique spa that offers and is known for its first rate massages. We just received a chargeback notice from a client that we had that says he was dissatisfied with the service. He had already received a discounted price on the service, had said that the service was “ok” but did not refuse to pay. I swiped his card, he signed AND left a tip – small, but nevertheless, he did leave a tip. He never emailed or called us to complain. Do we have a case?
Hi Ruth,
The best thing to do is provide as much documentation to your processor as you can about the charge. Be sure to work with your processor and be prompt with handing over any supporting evidence. Good luck!
Does reversing a charge back ever happen? As in, you contact the customer, who never said they were dissatisfied with your service, after the charge back has occurred and state that you are more than willing to refund the money directly instead of going through the charge back route. Just trying to keep our business’ record clean from charge backs. Or, once that charge back happens, is it already a black mark against you and the damage is done?
Hi Michelle,
You’ll need to work with your processor on the chargeback. You should not refund the money if a chargeback has already been initiated. If the customer says they weren’t dissatisfied, the chargeback may go in your favor, unless it was an issuer-initiated chargeback for some reason. Be sure to check with your credit card processor about this.
An employee charged some products and then did a chargeback with the bank, stating she didn’t know she had the order. She knew she did and then to top it off, she kept her commission. What can a company do about this employee?
Hi Cindy,
Unfortunately, we can’t advise much on a situation like this, as it has to do with personnel and legal issues, not processing. For the chargeback aspect, you’ll need to work with your credit card processor to provide any necessary documentation if you intend to fight the chargeback. I hope this helps!
If we have a customer call in and want to dispute a charge can we legally ask them to call the company and see if they will resolve the situation before we start a chargeback through the bank? I am thinking we can’t, but I wanted to check and see.
I’m not sure who you are in this situation – if a customer calls in where? What company do you want to advise them to call?
I work for a bank and I handle the chargebacks on debit cards. If a customer calls and wants to dispute a transaction that wasn’t authorized with a company (example AT&T) am I allowed to ask them to call AT&T and resolve the problem?
Hi Leslie,
Generally it’s a good idea for customers to check with the business to resolve issues first, but I’m not sure if your bank has to comply with any regulations regarding consumer protection for disputes. That’d be a better question for your legal team or state consumer protections group.
We are a company that verbally charged our customers over the phone upon enrollment then instruct them to log onto our website to sign our Terms and Conditions.
My question is for a phone order transaction, how many days after the sale can the customer sign the T&C and what was the best approach to get the members to sign the T&C right after the sale?
What I have noticed that 3 out 10 customers are signing the policy.
Hi Stephanie,
This doesn’t really fall under our area of expertise. It would be better addressed to management or an attorney. Good luck!
We were charged back $8400 on an account that the cardholder admittedly gave this person the card to use. She said “she was only supposed to use it once” LOL. How were we supposed to know that!
I am a certified debt buyer. My business took an Amex payment using a card under the spouses name.
Our MC/VISA/DISCOVER processor requires our office record all of our telephone payments to protect us from unauthorized payments. We received the following chargeback Card not present fraud – F29
The Cardmember denies participation in a mail order, telephone order, or internet Charge.
When we went to contest the chargeback with AMEX they requested all relevant docs. We provided them all the correspondence between the customer. This included information as to who we were, proof that we were the individuals responsible for payment and proof the debt was valid and what settlement we would accept. After they made the payment we sent them a settlement document showing they made their payment. We also attempted to send them the recording of the customer agreeing to recording and stating he was agreeing to pay his bill with the card member coming on the phone to authorize the transaction.
They eventually upheld the Card not present fraud – F29
The Cardmember denies participation in a mail order, telephone order, or internet Charge. I called in and asked to speak with supervisor. He claims that I had not read the AMEX Merchant Regulations for US. I told them I had went through it and thought i was doing everything necessary in order to prevent chargebacks. They said if i reviewed the 216 page document I would see that I am required to have the card member sign a document allowing transaction. I said that dosent make sense I have made many transactions over the phone and have never signed any document such as this. I asked to see this in writing. After 2 hours the Customer Service could not show me any AMEX regulation requiring that authorization be written and signed by customer and could not be a mutually authorized recorded telephone conversation. I had done everything that was requested as shown on their regulations guide below :
Processing a Card Not Present Charge
Mail orders, telephone orders, and Internet Orders increase your business opportunities, but
such Card Not Present Charges do not provide you the opportunity to inspect the physical
Card. For these Card Not Present Charges, fraud might be difficult for you to detect.
You must:
For Card Not Present Charges, you must create a Charge Record as described in Section 4.8,
“Charge Records”. The information you must obtain in order to proceed with the Transaction
includes:
Card Number or Token, and
Card or Token Expiration Date.
In addition, we also recommend that you ask for:
name as it appears on the Card,
Cardmember’s billing address, and
ship-to address, if different from the billing address.
American Express merchant regulations.
And i had proof of all of this on recording and they wouldn’t accept it. They said their regulations guide clearly stated i needed a “authorization approval” and throughout their 216 page document they did not have a definition of “authorization approval”. I assume the recording of the sale was an authorization probably. It was only described to me over the phone as a signed document where card holder agrees to payment. I again asked as a business owner with a merchant account I need to know what is required of me to take payments over the phone. NOWHERE IN THEIR REGULATIONS DOES IT SAY ANYTHING ABOUT A SIGNED AGREEMENT BY CARDHOLDER TO PAY FUNDS. CAN BANKS JUST MAKE STUFF UP AS THEY GO???
I can imagine this has effected millions of businesses. I am looking in to filing a class action lawsuit against AMEX. I am looking for other businesses that have been effected.
The only reason we won’t be joining your potential class action suit against AMEX is we quit taking their cards long ago. Apparently, they now keep the transaction fee even if you refund a sale (or a fraud transaction) sent us right over the top. On top of that, they are the most expensive of all the processors. And we also inferred from an email promotion sent to customers that they were apparently teaching AMEX customers how to file chargebacks that will be successful and how to keep the merchandise. Further, for the longest time, AMEX appears to not require proof or return to honor a chargeback. In our experience, the worst nightmare is an AMEX chargeback where we, as sellers, are sure to lose. Visa and MC appear to be the most reasonable and willing to listen and make fair judgments. That said, we have suffered ridiculous decisions by Visa/MC. We still view them as better for sellers.
Hi,
We are a servicing company. Customer calls us, we go over the charges for service and if they agree then we setup the appointment. The customer is doing a charge back. We are being asked if we provided a refund policy clearly stating what the procedure is. We explained that the business is not a walk-in but rather we travel to the customer’s home and provide the service(s) they requested. We gather their signature and write down their CC information with CVC code. How can I approach this in proper wording?
Hi Steve,
You’ll need to work with your credit card processor to fight the chargeback. In general, having a written refund policy can help your case.
Hello,
A customer stayed at my vacation rental property for a week, it was a $3,000 reservation, they were from the UK. I had them send me their passports, electronically sign a rental agreement and a credit card authorization form, send in the booking confirmation from booking.com, and text correspondence with the customer. 4 months later, a chargeback. I sent in all relevant documents stated above and still lost! Is there anything else I can do??? This is a big hit! Thanks for the help.
Unfortunately, there’s not much you can do outside of the appeals process. You can contact your processor to see if there are any steps left to appeal. Good luck!
We have never had a chargeback and we recently just got our first one. I got the paperwork faxed over to me and this girl took a class in June and at the time of the class, we put her credit card through to pay for the course. 2 months later, I get the chargeback. She said she went to her bank and didn’t recognize the company name and initiated a chargeback. When I first called her, she said she didn’t remember our name and thought it was fraud. She said she was going to call her bank but is now not returning our calls. What do I do at this point? The customer verbalized that it was her fault but still we are out the money. Is there anything additional I can do? Any advice is appreciated.
Hi Stephanie,
You’ll need to work with your credit card processor to help with the chargeback.
Thank you so much. I will do that. I used to work at a Credit Union for 10 years and I remember when someone wanted to do chargeback, we treated that very seriously. We would have the customer write a letter explaining what happened with the transaction. After the letter, we would have them come in and we would call the company with the customer there to see if we could rectify the situation. The chargeback was only the last resort. Now I left the credit union back in 2009 but it seems that banks are very quick to do them without working with customer first. It’s just crazy. Thank you for listening and your advice.
Steph
A customer came in and bought a car and put about $9,500 on AMEX. Two months later he file a chargeback for “receiving a damage car”. Mind you, this customer came in and test drove the car, then decided to buy the car. He was offered extended warranty in which he refused and he had to sign an “AS IS” since it’s a used car. The chargeback process is still ongoing, and my merchant provider let us realize that AMEX most times side with their customer. Is there anyway we can go about this case?
Hi Jon,
Your best bet is to work with your processor to provide as much as documentation about the validity of the sale as possible, including the signed as-is statement. Beyond that there’s not much you can do, unfortunately. Chargebacks are one of several reasons that many car dealers don’t accept credit cards. Good luck!
We are a company that sells machinery. A customer ordered with Amex for machine plus a $300.00 shipping charge. Machine was sent with liftgate service on a truck. Customer admitted he changed his mind on the phone but refused delivery stating they could not get the machine off the truck; obviously a lie. We received the machine back and issued a refund minus the shipping charge there and back ($300 x 2 = $600).
Customer issued a chargeback for full refund of purchase including said shipping fees. Our policy on the website clearly states no refunds on every page as well. Can I win the dispute so I am not out $600 in shipping for nothing?
Hi Scott,
Your best bet is to submit any documentation of your policies and work with your processor on the chargeback. Good luck!
Just to let you all know the bank always sides with the card holder. Ultimately you as the merchant will never win.
A better method is to file suit in small claims court. Here you will have someone with a brain judiciate the procedure instead of some $9/hour person working for the credit card company.
I draft and submit representment for my company, and we have a formidable success rate at reversals. Hundreds of thousands of dollars have been reversed to our company through proper chargeback representment. In my opinion, the keys to chargeback reversal are: to represent each and all, to collect sufficient compelling evidence, to utilize concise information to properly represent your case, and to follow the process completely– all the way to arbitration if necessary.