Fraud? Or Merchant Error?


There is nothing simple about chargebacks. Managing chargebacks can require a deep level of knowledge and a vigilance for staying up to date. It’s because of this that the waters can be muddied rather quickly when you start digging into a chargeback to determine who is actually at fault. What can at first look like out-and-out chargeback fraud might be merchant error, or vice versa. So, where does this leave you as a merchant?
Essentially, it means you need expert help and a firm grounding in all things chargebacks, including understanding your rights as a merchant. Your chargeback merchant rights are not something often addressed, as it almost seems to be a topic of little value to discuss. However, we’ve received a few questions and comments from a variety of businesses asking about rights for merchants, and we believe this is a very important topic.
The number one thing to know and remember is this: You do have rights as a merchant; though this may be unexpected, the customer is not always right.
Exercising your merchant rights helps protect your business and ultimately strengthens the entire chargeback infrastructure: merchants, issuers, banks, companies in the payments industry, credit card companies, and consumers.
Knowing Your Chargeback Merchant Rights
Your merchant rights are often overlooked (by yourself, the industry, and your customers) all too often. This behavior can be blamed on two key aspects:

  • Consumer protection:  Chargebacks were introduced in 1974 by the Fair Credit Billing Act to protect consumers from credit card fraud. The idea was that consumers lacked confidence with the security of credit card transactions, and chargebacks would provide them with the confidence to use their credit cards.
  • Customer is always right:  How often have you read a statement or viewed a sign in a business that attests to the rights of the customer and claims that the customer is always right? This has created an underlying belief that the customer is actually always right and would not make a mistake or commit fraud. This industry-wide misunderstanding has made it inherently challenging for those in business to speak up about their merchant rights.

Your chargeback merchant rights are connected to the chargeback reason codes and rules associated with credit card issuers. Every credit card company has its own list of reason codes and associated processes for managing chargebacks, but in general it’s important to be aware of these key merchant rights:

  • Returned item chargebacks:  When a customer has returned an item, a chargeback cannot be filed until 15 calendar days after the return date. This gives you time to issue a refund and review the returned item to ensure it meets the stipulations outlined in your refund/return policy.
  • Issuer responsibility:  Review the reason codes carefully and make sure that the issuer is adhering to their own guidelines. Many issuer reason codes stipulate the necessity of the issuer’s attempt to resolve the problem with the customer before a chargeback is filed. Also, the issuer is supposed to confirm that they have done this before proceeding with a chargeback.
  • Know the time limits:  The reason code specifies how much time you have to respond and how this time is calculated. Your customers are bound by several time periods ranging from 45 days up to 540 calendar days—it all depends on the chargeback reason codes. Knowing all the details associated with chargeback reason codes can help protect you from abuse of the chargeback process.
  • Delivery date rights:  When a purchased item is delivered after the promised delivery date, the customer must first return the item before filing a chargeback. A late delivery is not grounds for a chargeback, and when this does happen, you might consider the possibility of chargeback fraud.
  • No cash-back chargebacks:  When your customer requests cash-back following the purchase of your product or service, this cash cannot be included in the chargeback amount. Often customers will try to cheat the system by asking for cash-back and then include this amount in their chargeback claim. All too often the customer will win this money back, because the merchant doesn’t know better or has become used to simply not representing the chargeback.
  • Representment is your right:  This is ultimately your most important merchant right—the right to represent. Remember that you cannot and should not become a victim of chargebacks. The strength of the industry depends on merchants like you who stand up for their rights and are willing to dispute or represent invalid chargebacks. Doing so reinforces your rights, reminds issuers and banks that the chargeback process must be observed and followed, and signals to customers that they cannot assume that the customer is always right mantra will win out.

Exercising Your Merchant Rights
Isn’t it refreshing to be reminded that you do have rights and that as a merchant, you’re not expected to be a victim of the chargeback system? We suggest you do more research about chargebacks, chargeback solutions such as CDRN, and how you can better protect your business from fraud. And know that you are welcome to contact us with your questions and let us work with you to ensure you’re taking advantage of the latest in chargeback technology, and that you are up to date with the latest industry regulations.