Escape Hatch from Arbitration

For many people, their understanding of class action lawsuits comes from movies. The victories of the small-town community that rallied together under the fearless advice of their lawyer is both inspirational and encouraging.
However, no one in the payments industry wants to be involved in a class action lawsuit – issuers, merchants, or customers. The cost, stress, and unpredictable outcome can often be more troublesome than the basis for the lawsuit. Successful or not, class action lawsuits change how issuers, merchants, and customers interact and communicate.
Many believe that the threat of a class action lawsuit on behalf of consumers against card-issuing banks is the only right to protection customers have against big banks. While arbitration is always an option, some believe that class action lawsuits are more powerful and effective.
A recent Congressional ruling has turned the tables on how customers can settle disputes with issuing banks. This October 2017 ruling has removed the right of customers to file class action lawsuits against issuers – meaning that customers may be left with arbitration as their only form of recourse in settling a transaction dispute to their satisfaction.
While there are pros and cons to both sides of this decision, one thing is clear: this ruling does not solve the problems plaguing the payments industry. The chargeback process continues to be a remedy for consumers and merchants in need of improvement and updates.
Arbitration for the Issuer, Merchant, and Customer 
It’s important to take a high-level look at how the ruling against class action lawsuits really does impact issuers, merchants, and customers. The reality is that no party involved in payments wins with this ruling.
For issuers, while the threat of costly class action lawsuits is no longer a threat, the costs of arbitration cannot be overlooked. Although arbitration may lead to faster settlements and less of a long-term drain, issuers must still deal with arbitration costs and resource demands.
For merchants, now that customers have lost their right to file lawsuit disputes against issuers, the threat of secondary chargebacks might be heightened. Secondary chargebacks are often a forgotten threat for many merchants, who incorrectly assume that once a chargeback is resolved that the issue is closed.
For consumers, the right to file a class action lawsuit against a bank was one that provided them a wider avenue of choice in resolving transaction disputes. With this right dismissed, customers may be forced to rely on arbitration as their sole recourse for protection and recovery – typically resulting in much lower settlements.
When thrown in a pot and brought to a boil, the collective impacts of the Congressional ruling mean that everyone in payments may be subject to entering an antagonistic relationship. Customers, more than ever, are now more likely to turn to chargebacks. Merchants are at the mercy of increased chargeback threats and the fees that come with chargebacks. Issuers are left with an even greater tarnished public image, making it hard to ensure customer loyalty.
The obvious solution to this is communication and collaboration. Open collaboration between issuers, merchants, and customers can mitigate the chargeback problems plaguing the payments industry.
The Broken Chargeback Process
The chargeback process could be better. In fact, it could be a lot better – all it takes is getting the right people talking and working together. This, as merchants and issuers know, is easier said than done.
No one wants to be involved in a chargeback: the customer simply wants their problem fixed, the merchant wants to help the customer, and the issuer wants to support the customer, ensuring a good experience.  With merchant-customer communication and issuer-merchant collaboration, the pain points of the chargeback process can be eliminated:

  • Cardholder confusion. The cardholder doesn’t recognize a charge or doesn’t know who to contact with their problem. Their only recourse is to initiate a chargeback with their issuer.
  • Issuer lacks knowledge. The issuer doesn’t know the customer’s history or the real reason for the chargeback. The issuer has no way to easily identify fraud.
  • Merchant is left out. The merchant learns of the chargeback only when it’s too late to solve the problem with the customer. Now the chargeback process has started and it can’t be stopped.

Verifi’s Cardholder Dispute Resolution Network (CDRN) was designed with collaboration and communication as the focus. With this payment solution, Verifi is able to offer merchants, issues, and customers the support and communication avenues they need to solve their problems outside of the chargeback process.
Doing so restores the trust and understanding among everyone involved, and provides an opportunity to better prevent future chargeback and fraud risks. Rather than pitting the customer against the merchant and issuer, or the merchant against the issuer, solutions such as CDRN work to solve the broken chargeback process and improve customer experience.