Chargeback BanTaking Drastic Action to Stop Payment Disputes

David Pirtle David Pirtle | July 3, 2024 | 11 min read

Chargeback Ban

In a Nutshell

Are chargeback bans the solution to stop repeated disputes? As David Pirtle emphasizes in this article, merchants may need a more holistic approach to chargebacks. While bans can help deter repeat fraudsters, they are not a one-size-fits-all solution and can unintentionally harm relationships with legitimate customers. A proactive and comprehensive strategy that involves periodic process reviews and personalized interventions, such as customer service outreach before implementing bans, is recommended.

Can You Get Banned for Filing Chargebacks? Do Chargeback Bans Actually Help Stop Disputes?

Chargebacks have been a point of contention between merchants and cardholders for years. That’s nothing new.

Disputes cause significant financial strain for merchants, as they’re forced to navigate the intricate procedures of dispute resolution. The pressure that chargebacks cause can lead some merchants to take pretty drastic actions. For example, outright banning users that file disputes.

Banning users for filing chargebacks is an option. But, is it the right one? Today, we’re going to delve into the implications of the chargeback ban, examining its potential to reform current practices, as well as the potential risks for all parties involved.

Can Merchants Ban Customers for Filing Chargebacks?

The short answer is “yes.” Merchants always have the right to refuse service to customers. If a cardholder files a chargeback, then the merchant is well within their rights to ban that user from doing any further business with them. This could be as simple as blocking a user in one’s CRM to stop them from completing any future transactions.

Now, we should also address a related, but separate question: should merchants ban customers for filing chargebacks?

Deliberate Fraud

For this one, the answer is a lot less clear cut. It really depends on the circumstances; on one hand, most chargebacks — roughly 75% of them, according to Visa — are the result of friendly fraud. That means three out of every four chargebacks are filed by cardholders without a valid reason. And, if cardholders are abusing the chargeback process, then it makes some sense to ban them.

At the same time, a lot of cardholders that engage in friendly fraud do it by accident. The chargeback is basically the result of a misunderstanding, rather than a deliberate scam.

We recommend that merchants take in all the information we’re about to cover, consider it carefully, then make this decision for themselves.

Accident Fraud

Why Do Merchants Ban Users for Chargebacks?

There are a few reasons why.

On one hand, let’s say a cardholder files a friendly fraud chargeback. The merchant is confident that the customer is engaging in abusive practices that are against the merchant’s terms of service. In this case, it makes sense to ban the user. After all, if the buyer abuses the chargeback process once, there’s good reason to believe they’ll do it again.

On the other hand, let’s say a merchant gets a chargeback resulting from genuine criminal fraud. Well, that means the account in question is compromised. A fraudster has taken over the user account or payment card in question. So, any subsequent transactions from the same account could be fraud, too.

In the end, merchants want to protect themselves from potential losses. If a customer has filed multiple chargebacks in the past, whether for legitimate or illegitimate reasons, then the merchant might decide it’s just too risky to keep doing business with that cardholder.

Are Chargeback Bans the Same Thing as Chargeback Blacklists?

They’re related. But, the context is slightly different.

A chargeback blacklist is a database that includes details on people or locations that can present a high chargeback risk. Users that get added to the blacklist can be banned from attempting future transactions.

What makes a blacklist different from user-specific chargeback bans is that most merchants don’t maintain their own blacklist. Instead, they usually invest in access to an external list, compiled from reports of chargeback abuse made by other merchants. The seller can use fraud screening software that checks each transaction for blacklisted account information. So, they could end up blacklisting users that have never even done business with them before.

If a merchant wants to put a chargeback ban on a specific user, it’s usually because that user has already filed a chargeback against the merchant in question in the past.

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Chargeback Bans & Gaming: A Case Study

To get a better understanding of how this works, let’s look at a notable, real-world example of a chargeback ban policy in action.

Here is the policy that Sony has published on their site regarding what they call “account debt”:

A chargeback, or payment reversal, occurs when a financial institution cancels an existing payment at your request.

As a chargeback can indicate you suspect fraud or account take-over, we will suspend your account or console to protect it while we investigate. If there is no lawful reason for the chargeback (e.g. no legal right to a refund), your account will remain suspended until the debt is repaid.

...

You can regain access to your account by paying the balance that is due.

...

If you see the error code WS-37368-7 when attempting to sign in to PlayStation Network, your account has been suspended because your financial institution reversed a charge on one or more of your PlayStation Network purchases.

Losing access to one’s PSN account means losing access to any digital content, including games, purchased using that account. So, filing an suspicious chargeback could mean losing hundreds, or even thousands of dollars worth of purchases.

This policy first caused controversy nearly a decade ago. However, despite pushback from gamers, the policy has remained in place.

Are Chargeback Bans Effective at Stopping Abuse?

Kinda. Or, maybe it’s better to say that, while they can help merchants block abusive practices, they might carry some serious unintended consequences, too.

Sellers run the risk of accidentally banning good users. This creates frustration and mistrust among customers. Some might even feel unfairly targeted or punished for an honest mistake or misunderstanding, leading to negative reviews and damage to the merchant’s brand.

For example, a customer can request a chargeback on a purchase that they authorized, but simply didn’t recognize on their bank statement. There was no malicious intent, but the customer’s account gets suspended anyway. Even if the mistake gets corrected, the inconvenience and frustration could lead the customer to stop doing business with the company anyway.

Pro Tip

PRO TIP

Consider only banning users that submit transactions resulting from true fraud. To do this, you’ll need to make sure that your deploying an effective strategy for fraud detection. Click here to learn more.

At the same time, there are plenty of ways for fraudsters to evade detection. Experienced fraudsters know how to circumvent bans. So, even if they get caught and banned, a scammer can easily create a new account with different stolen card information and continue their activities like nothing happened.

Some abusers might see it as a challenge and try even harder to find ways around the bans. We’ve seen some of this in online gaming communities, where players often brainstorm to come up with creative solutions to bypass bans or suspensions.

Finally, there’s the fact that chargeback bans do not address underlying issues that might cause chargebacks. For instance, poor customer service or issues with product quality. If customers feel like they are not being treated fairly, or that they’re getting a subpar product, they may turn to chargebacks as a way to get their money back. Banning these customers will only add insult to injury.

Best Practices for Imposing Chargeback Bans

So, let’s say you’re a merchant. You’ve reviewed the pros and cons, and have decided you want to proceed with banning users for suspected chargeback abuse. Where do you start?

I’d recommend the following steps:

Step #1  |  Gather Your Data

Start by putting together data on what triggers your chargebacks. Is it fraudulent transactions? Invalid cardholder claims? Collect identifiers like customer location data, delivery location, device fingerprints, email addresses, and IP addresses to help train your decision-making process.

Step #2  |  Set Criteria for Chargeback Bans

Define your criteria. What practices will land a (former) customer on the ban list? This could range from a single chargeback at the furthest extreme, to a combination of repeated disputes, plus data points that indicate a pattern of fraudulent behavior. The exact criteria will depend on what you decide is “too much.”

Step #3  |  Automate Decisioning

Next, you’ll want to integrate your blacklist with your CRM or fraud detection software to automate the process. This integration ensures that suspicious transactions get flagged and reviewed in real-time. If you have the bandwidth, it’s not a bad idea to manually review candidates before imposing a ban.

Step #4  |  Continuous Updates

Regularly update your chargeback ban list based on new data and emerging trends. Since fraudsters constantly change their tactics, staying updated will help maintain the effectiveness of your strategy. The last thing you want to do is end up banning users for the wrong reasons, while scammers can keep on abusing chargebacks with impunity.

Step #5  |  Review Your Process

Establish a periodic review process. Remember: banning customers is a serious step. You don’t want to take it unless it’s demonstrably helping you run your business better. Going back periodically to review processes helps to minimize false positives, ensuring that legitimate customers don’t get hit with the ban hammer.

Pro Tip

PRO TIP

Before imposing a chargeback ban on a customer, considering having a customer service person reach out. They might be able to understand more about why the customer went to the bank; for example, it could have been that your billing descriptor just didn’t make sense on the customer’s statement. This way, you can keep a good customer and use that valuable feedback to avoid future chargebacks.

No Single Tool Can Prevent Fraud

Handing down chargeback bans can definitely help you stop repeat attacks by known fraudsters. However, don’t expect them to be some kind of “killer app” that’s going to stop chargebacks in their tracks. Especially when you remember that, if not handled carefully, they can end up making the situation worse.

Only about 10% of chargebacks are the direct result of criminal activity. Most chargebacks are caused by merchant mistakes and friendly fraud. So, instead of depending on chargeback bans to stop abuse, I’d recommend taking a more comprehensive approach, covering every phase of the chargeback cycle.

Your chargeback management plan should be customized to suit your specific needs. Interested in a more personalized approach to chargeback prevention? Contact Chargebacks911® today and discover the potential return on investment with our expert services.

FAQs

Can a company ban you for a chargeback?

Yes, a company can ban you for a chargeback, especially if you have a history of frequent or unjustified disputes. This is typically done to protect the business from potential losses associated with chargeback fraud or abusive behavior.

What is a chargeback?

A chargeback is a reversal of a credit or debit card transaction, initiated by the cardholder's bank. This process is typically used to dispute fraudulent charges or resolve billing errors for the cardholder.

Can you go to jail for chargebacks?

While it is rare, you could potentially face legal consequences, including jail time, if a chargeback is proven to be fraudulent or if it is part of a larger scheme of chargeback abuse. In most cases, however, chargeback disputes are civil matters rather than criminal ones and are resolved through financial restitution.

Why are companies afraid of chargebacks?

Chargebacks pose a significant financial risk to companies as they can result in lost revenue, fees, and potential fines if abuse is suspected. Additionally, a high chargeback ratio can damage a company's reputation with payment processors, leading to higher processing fees or even the loss of the ability to process credit card transactions.

David Pirtle

Author

David Pirtle

VP of Enterprise Engagement

David Pirtle is the VP of Enterprise Engagement at Chargebacks911. Before joining Chargebacks911 in 2014, David studied Residential Planning at the Art Institute, and worked in the highly regulated medical data transfer field, servicing major hospitals and insurance companies, gaining invaluable experience in digital security. Since joining Chargebacks911, he has played an integral role in fostering the company's strategic revenue expansion, sales strategy build out, and helping identify merchants’ needs. David is also a valued subject matter expert, whose insights have been featured at payments industry trade events across North America and Europe.

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