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Arbitration Chargeback

Arbitration Chargeback

The Complete Merchant’s Guide to the Arbitration Chargeback Process

The arbitration chargeback is one of the later stages of the chargeback process. By this stage, the parties involved—the bank, cardholder, or the merchant—are unable to resolve a dispute on their own, so a representative of the card scheme is asked to intervene and make a judgement.

Most chargeback disputes get settled before they reach the arbitration phase. Disputes that require arbitration, though, will rarely go well for you as a merchant.

Understanding the Arbitration Chargeback Process

Chargebacks are a consumer protection mechanism, guaranteeing cardholders the right to dispute a credit card transaction. If you think the cardholder filed a chargeback without good reason, though, you can challenge it through a process called representment.

It works like litigation in the legal system: the cardholder makes an allegation (the chargeback), then you provide evidence in response to counter that allegation (representment). If the evidence isn’t strong enough, the cardholder’s issuing bank might reject your case and file a second chargeback, also called a pre-arbitration chargeback.

Accept or appeal

You have two options at this point: either accept the second chargeback, or appeal to an arbitrator from the card network to take another look.

Plenty of merchants choose not to go into arbitration because of the added fees, time, and the potential penalties if you lose your arbitration case. To them, it’s better to just take the chargeback than risk losing even more.

If you really have strong evidence to support your case, though, it could be worth the trouble.

Mastercard and Visa have similar regulations regarding the chargeback arbitration process, but there are key differences. Certain steps, time frames, and even terminology are different. With that in mind, here are some of the things you should expect from the arbitration chargeback process.

Arbitration Chargeback

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Arbitration Chargeback

Mastercard Arbitration

Before we focus on arbitration, let's review the steps that lead up to it. We'll start with Mastercard's process, which can be divided into four main stages leading up to arbitration:

  • First Presentment: The merchant processes the original transaction.
  • First Chargeback: The issuer or cardholder disputes the transaction.
  • Second Presentment: The merchant re-presents the transaction, accompanied by supporting evidence that contradicts the cardholder’s claim.
  • Arbitration Chargeback: The issuer/cardholder disputes the merchant’s second presentment, and the case goes to Mastercard for arbitration.

Mastercard’s chargeback process is complex, but their arbitration process can be even harder. Plus, it’s constantly evolving.

As a merchant, you never really know when a second presentment will turn into an arbitration chargeback. Your best bet is to carefully review Mastercard’s policies and regularly check for updated regulations so you're always aware of the latest requirements.

Section A: Mastercard Arbitration Time Limits

Specific time limits are associated with every aspect of the chargeback process. For example, most cardholders can only file a chargeback within 120 calendar days of the initial transaction. A few reason codes allow for shorter timeframes.

In the case of an arbitration chargeback, though, the issuer must file within 45 calendar days of the second presentment settlement date.

This is somewhat misleading, though; your acquiring bank will probably have a more stringent timeline. Each acquirer is different, but your response time is typically 50-65% of the card scheme's limit, as they need time to review everything and get it to Mastercard before the deadline. So, if you have 45 days to respond to an arbitration chargeback, you can count on having 20-22 days to get documentation and evidence to the acquirer.

The issuer, by the way, can respond to any new information you provide at any time until the case decision is finalized.

Section B: The Role of MasterCom

Per Mastercard guidelines, all arbitration cases must be submitted and managed through the Case Filing application within MasterCom. Requiring the app helps standardize the process. Whoever requests arbitration is responsible for ensuring that legible copies of all relevant documentation are linked to the case in MasterCom.

This includes the chargeback reference number and all the supporting documentation supplied in the case up to this point, plus any additional evidence to strengthen your case. Mastercard will also require a written explanation why any new information was presented, particularly anything you included as a response to new data in the second chargeback.

What if a chargeback reference number doesn't exist or isn't linked to the original supporting documentation, though? In that case, you’ll need to manually attach a thorough description of the circumstances of the case (in chronological order) and all the missing supporting documentation through MasterCom.

As the party requesting arbitration, you can withdraw the case for any reason, at any time prior to a Mastercard decision, and simply accept the arbitration chargeback.

Section C: Mastercard Review Stipulations

Mastercard won't rule on a case until one of the following occurs:

  • 10 calendar days from the case-filing submission date have passed.
  • The other party rejects the case filing through MasterCom.

Once all the documentation is delivered and reviewed, Mastercard can decline the arbitration case for various reasons, including but not limited to:

  • The filing customer didn’t supply enough documentation.
  • The case was filed beyond the acceptable time limit.
  • The case filing was not submitted in English.

Mastercard will review the case and render a decision based on multiple factors, including:

  • Technical merits of the case.
  • Substance of the case.
  • Previous case rulings.
  • Implications for the Mastercard brand.

During the review process, you must provide any additional documentation requested by the Mastercard staff. Once a decision is reached regarding the arbitration chargeback, it will be posted via MasterCom.

Section D: Fees Involved with Mastercard Arbitration Chargeback

This is one of the main reasons merchants choose to avoid arbitration: it’s expensive. The arbitration process involves multiple fees, and different parties will be responsible depending on the outcome:

Filing Fee ($150) & Administrative Fee ($250): You’ll need to cover the filing fee and administrative fee to initiate arbitration. You can also resubmit a declined case to correct whatever deficiency caused it to be kicked back...but you’ll be hit with another filing fee each time. Ultimately, the party ruled responsible for the case must pay the administrative fee and the filing fee.

Withdrawal Fee ($150): You’ll be hit with a $150 fee if you withdraw your case before Mastercard issues a ruling. You will also be responsible for covering the filing fee and administrative fee.

Technical Fee ($100): An additional $100 fee may be issued to any party violating the dispute processing rules. Even if you win the arbitration case, if you break one of the rules, such as processing a chargeback past the time limit, for example, you can still get hit with a technical fee.

Even after all of this, you still have the option of challenging the arbitration decision if Mastercard judges in favor of the cardholder/issuing bank. You must:

  • Appeal within 45 days of the Mastercard ruling.
  • Pay another $500 to cover re-filing and administration.
  • Gather up all documentation again in printed copies.
  • FedEx everything directly to Mastercard.

Arbitration Chargeback

The Visa Arbitration Process

Visa does things a little differently from Mastercard, particularly after this year's implementation of the Visa Claims Resolution initiative, or VCR.

Arbitration Chargeback

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To start with, the terminology has been altered: "chargebacks" are now called "disputes," and "representment" is now labeled either "dispute response" or "pre-arbitration."

Another major difference is the filtering that happens at the very outset of the process. Everything starts when the issuer or cardholder makes a claim against a transaction. Before that claim can escalate to a dispute, however, Visa runs the information through a pre-dispute process that filters out illegitimate complaints.

If the dispute is judged valid, it is automatically assigned a workflow track based on the type of claim: either the Allocation track for fraud/authorization issues, or the Collaboration track for consumer and processing errors.

Section A: Allocation

The Allocation track is the more streamlined of the two, so we'll start here:

  • First Presentment: The merchant processes the original transaction.
  • Pre-Dispute: The cardholder or issuer files a dispute and Visa provides an automated decision based on Visa rules. In other words, Visa decides if the transaction is valid based on all the information it has available at the time.
  • Pre-Arbitration: Merchant/acquirer must either challenge the dispute or accept liability.
  • Pre-Arbitration Response: If the dispute is challenged, the issuer must either accept or deny the acquiring bank’s motion for arbitration.
  • Arbitration: The case goes to Visa for a final decision.

Essentially, this is the banks going back and forth as they try to resolve the issue by deciding if a transaction was unauthorized or fraudulent. Liability is automatically assigned at the outset, and it’s up to that party to prove otherwise.

Section B: Collaboration:

The breakdown of the Collaboration track is much closer to what we saw for Mastercard:

  • First Presentment: The merchant processes the original transaction.
  • Dispute: The cardholder or acquirer has an issue with the transaction and disputes it.
  • Dispute Response: Merchant/acquirer must either challenge the dispute through representment or accept liability.
  • Pre-Arbitration: If the acquirer re-presents the transaction, the issuing bank must either accept liability or reassert the claim that the transaction is invalid.
  • Pre-Arbitration Response: If the issuer reasserts the claim, then the acquirer moves to progress the transaction to arbitration.
  • Arbitration: The case goes to Visa for a final decision.

It's important to note here that Visa doesn't use the term "arbitration chargeback" like Mastercard does; they simply call it "arbitration." That label can mean many things, however, so for clarity, we’re using the Mastercard terminology.

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Section C: Visa Arbitration Time Limits

As with Mastercard, your arbitration case will be rejected if you don’t follow the filing requirements, including strict time limits. The bank has 30 days to respond to each round of the process (dispute response, pre-arbitration chargeback, and pre-arbitration response). For the actual arbitration chargeback, though, the time limit is reduced to 10 days.

Again, note that these are the hard timelines required by the card scheme; the window allowed by your acquirer will be smaller to give them time to review and submit documentation.

Section D: The Role of Visa Resolve Online (VROL)

To streamline and speed up the process, Visa requires all parties go through the pre-arbitration process before filing an arbitration chargeback. You must provide documentation to the issuing bank as evidence, and the issuer must offer proof that the cardholder has been contacted and has reviewed the supporting documentation.

You'll only be able to escalate the case to arbitration chargeback if:

  • The chargeback process has been completed without resolution.
  • The opposing party has not adhered to the stated requirements for arbitration chargeback.
  • The opposing party does not accept financial responsibility within 30 days of the pre-arbitration attempt.

This requirement is facilitated by Visa Resolve Online, or VROL. Under the new VCR initiative, VROL will play an even larger role than before:

  • An issuer must request a Transaction Inquiry through VROL before initiating a dispute.
  • Financial messages to issuers and acquirers will be available through VROL.
  • Issuers and acquirers will have the option of initiating financial messages via VROL while using existing systems for fraud report submissions.

Taking advantage of the Visa Resolve Online Questionnaire will help you get a better sense of the overall process, as well as a preliminary look at estimated fees you can expect.

Section E: Visa Review Stipulations

The main rules that apply to arbitration documentation include:

  • All documents must be in English.
  • The case must include all information as outlined in the Visa Resolve Online Questionnaire.
  • All relevant supporting documentation must be included (no documentation or information can be submitted to Visa that was not available to the issuer).

Once all the documentation is delivered and reviewed, Visa may determine the arbitration request is invalid and reject the case. If an arbitration case is declined, whoever filed the case is responsible for the fees.

The losing party can appeal the arbitration decision only if new evidence emerges that was not available at the time the original case was filed AND the disputed amount is $5,000 or more.

Once Visa reviews the case, it may base its arbitration decision on the following:

  • All information made available during the arbitration process;
  • Visa rules effective on the transaction date;
  • Other factors of consideration, such as ensuring fairness for both members; and/or
  • Impact on the Visa brand.

Section F: Fees Involved with Visa Arbitration Chargeback

Visa's fee structures aren't quite as defined as those of Mastercard. Visa reserves the option to assign full liability to one member or split the responsibility between the two parties.

The responsible party(s) must pay:

  • Transaction Amount
  • Review Fee
  • Filing Fee

Non-compliance assessment can be charged to any party for technical violations of Visa’s rules. It's possible to win the arbitration chargeback itself but still be charged non-compliance assessments.

Preventing Arbitration

An arbitration chargeback prolongs the chargeback process, adding additional costs and responsibilities for the merchant. It should only be considered as a last resort, something to be avoided whenever possible. And the best way to avoid arbitration to avoid chargebacks altogether.

The professionals at Chargebacks911® are the industry experts at chargeback representment. We can also help with risk mitigation and prevention strategies, providing the answers to all your arbitration chargeback questions. For more information about our turnkey solutions, contact us today.

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