Need to Know: Merchant Chargeback Rights

Chargebacks are not the enemy. Yes, chargebacks can cost merchants is loss of sales, drain on resources, and when excessive they can lead to problems with the issuing and acquiring banks. However, chargebacks really do work as a method of protection for both customers and merchants.
Evolved out of the Fair Credit Billing Act in 1974, chargebacks have become established as a form of protection for customers against fraudulent use of their credit cards. Because cardholders were skeptical and nervous about the inherent security of credit cards, a no-fault mechanism was created to provide credit card confidence.
The overarching purpose of the chargebacks process is to protect cardholders from fraud. However, savvy fraudsters have come to depend on the chargeback system as a means to steal from merchants. In addition, honest cardholders use the chargeback process to affect a refund on products or services, rather than contacting the merchant directly. And most often, customers don’t realize the impact that chargebacks have on the merchant.
It’s important for merchants to remember that merchant chargeback rights do exist.
Overlooked Merchant Chargeback Rights 
Unfortunately, the chargeback process is often framed in a cardholder versus the merchant scenario. This sets everyone up for tension and frustration. Most discussion and writing about chargeback reason codes, the representment process, and overall chargeback system is positioned as anti-merchant and pro-cardholder.
This is neither fair nor realistic, and it’s important for merchants to understand that they are not alone in the chargeback process. Merchants need to understand some key rules and conditions surrounding chargebacks, which inherently provide them with protection.

  • No cash-back transactions. Chargebacks cannot be filed as a cash-back remedy for a disputed transaction.
  • Late delivery. If the product arrives after the stated delivery date, the customer cannot immediately file a chargeback. The customer must first attempt to return the item to the merchant.
  • 15-day waiting period. When a customer returns an item, the issuer must wait 15 days before processing the chargeback. This 15-day waiting period gives the merchant time to process a refund and communicate with the customer.
  • Reason codes. Some reason codes clearly detail that the cardholder must make efforts to solve the problem with the merchant. In addition, the timelines in the reason codes have been established to give the merchant time to gather evidence for representment.
  • Purchase price only. The chargeback refund cannot include the costs of shipping, handling, or other surcharges.

Many merchants have a misunderstanding that issuers always agree with the cardholder. While this is easy to assume, since the cardholder is also the customer of the issuer, remember that the issuer also wants to keep the merchant as a customer.
The major credit card companies have systems in place to review purchases, customer history, and chargeback claims. For example, when Visa discovers an invalid chargeback, this claim is returned to the cardholder without the merchant or acquirer ever being notified. As well, most acquirers have systems in place to review and remove invalid chargebacks, without ever alerting the merchant.
Visa, MasterCard, American Express, and Discover have very clear merchant compliance rules and regulations. Not only do these rules protect the credit card brand, but they also give merchants protection in the event of a chargeback. The rules around refund and return policies, for example, are designed to protect merchants from unwarranted returns. Merchants should be familiar with the documentation provided to them by credit card companies and ensure they’re fully protected against chargebacks.
The Importance of Chargeback Representment
The right of chargeback representment is among the most important right that merchants possess. The right of representment allows merchants to dispute fraudulent chargebacks and prevent chargeback fraud.
There is a misconception that the chargeback representment process is designed to defeat the merchant. Often, this belief goes unquestioned because so many merchants do not understand the representment process, or they have been stung by a difficult representment experience.
When a merchant is prepared with the requisite evidence, a well-written dispute letter, and complies to the representment stipulations as outlined in the reason code, these efforts serve to assert a very promising opportunity for the merchant to win the dispute.
Yes, to win a chargeback representment case, the merchant must be prepared. However, this preparation should not be a barrier to disputing fraudulent chargebacks. The chargeback representment process is the best way for merchants to highlight fraudulent chargebacks—convincing acquirers and issuers of the problems in the system and to prove to criminals that merchants cannot be bullied by theft.
You do have rights. You can and must exercise your right of chargeback representment. Contact us to learn how we can help you with your chargeback representment case. Stand up and use the chargeback process to detect and prevent fraud, and, above all, protect your business.