Reason Code RM — Cardholder Disputes Quality of Goods or Services

You Received a Discover Reason Code RM Dispute. What Should You Do?

As both an issuer and a card network, Discover operates in over 200 countries globally, counts 71.5 million payment cards in circulation, and is accepted by 70 million merchants worldwide.

As part of their operations, Discover has developed a robust yet straightforward chargeback system to handle cardholder disputes when they come up. The card network categorizes its 26 reason codes into four groups: fraud disputes, processing error disputes, service disputes, and reason codes for dispute compliance.

This article will discuss reason code RM, which falls under the service disputes category. We’ll talk about why these chargebacks happen, how you can respond to them, and what you can do to prevent them going forward.

What is Discover Reason Code RM?

Discover reason code RM is “Cardholder Disputes Quality of Goods or Services.” It occurs when a cardholder claims they purchased goods or services from you that did not meet their expectations. Typically, this means the cardholder received merchandise that was damaged, defective, significantly delayed, or different from what they ordered.

Discover cardholders must contact you and attempt to work out a solution before they can file a Code RM dispute. A cardholder who cannot come to an agreement with you has up to 120 days from the date of the transaction to file a chargeback in most cases.

But, there are exceptions here. If a cardholder claims you delivered counterfeit goods or misrepresented the terms of a purchase, they may have up to 540 days from the transaction processing date to file a reason code RM dispute.

What Caused This Dispute?

Reason code RM disputes happen when a cardholder claims that the quality of goods or services you offered failed to satisfy their expectations. Code RM chargebacks can also occur when a cardholder claims:

• You delivered damaged or defective goods
• You delivered counterfeit or fake products
• You charged them even though they didn’t agree to purchase or take delivery of your goods or services due to quality issues
• You misrepresented the goods or services you delivered
• The timeshare you delivered was not as described in the sales agreement. Note that this is only applicable to merchants assigned MCC 7012 (Timeshares)
• You altered or substituted a currency during a card sale

Before the cardholder’s issuing bank initiates a Code RM dispute, the cardholder must provide:

• Proof that the quality of goods or services were not as advertised, subject to the limitations discussed above.
• Documentation that shows a valid reason for cancellation
• Evidence that the goods or services were either not received or delivered as expected.

If a cardholder claims they received counterfeit goods, the issuer must provide the cardholder’s current location and describe the fraudulent merchandise received.

If a cardholder alleges you deliberately misrepresented the quality or nature of your offerings, the issuer must similarly prove that your verbal or written representations differ from the terms the cardholder agreed to. Alternatively, the issuer may demonstrate that the cardholder filed a report with law enforcement, a consumer protection agency, or another relevant authority.

Claims Exempt From Reason Code RM Chargebacks

There are many situations in which reason code RM does not apply. For example, this reason code cannot be used if a cardholder purchased goods or services from two different merchants. Or, if a service that you provided results in an unexpected problem that isn’t related to the transaction under dispute.

You are also exempt if you’re an ATM operator, and the transaction in question took place at an ATM machine. Or, if you’re categorized under merchant category codes 6012 (Quasi Cash—Financial Institution—Merchandise and Services) or 6051 (Non-Financial Institutions—Foreign Currency and Money Orders).

Finally, this reason code also won’t apply if a cardholder experienced an inconvenience related to the receipt of goods or services purchased. For example, a cardholder:

• Traveled from one location to another and, while in transit, lost their luggage, didn’t get their preferred sitting arrangement, experienced an unexpected layover, or received service that didn’t meet their expectations.
• Stayed in a hotel room that was dirty or didn’t have hot water or pillows.
• Transported goods from one location to another and damaged them in the process.
• Dined out at a restaurant but didn’t enjoy the meal, developed food poisoning, or received poor service.

How to Respond to Discover Reason Code RM Chargebacks

Not all reason code RM chargebacks are filed for legitimate reasons.

Friendly fraud occurs when a cardholder disputes a valid charge under false pretenses. It’s an increasingly common problem; in fact, 72% of merchants surveyed in the 2024 Chargeback Field Report report an increase in friendly fraud chargebacks over the past three years. Among this cohort, the average increase was 18%.

Fortunately, you can contest invalid reason code RM chargebacks though representment.

This is a tightly-regulated and time-sensitive process. You 20 days from the day you receive a chargeback notification to submit compelling evidence that shows the transaction is valid. For reason code RM disputes, evidence should demonstrate that you didn’t sell counterfeit goods or prove that the cardholder rejected your offer for a refund or exchange. We’ll discuss acceptable evidence in more detail shortly.

Along with evidence, your representment package should also include a rebuttal letter. An effective letter should summarize the evidence provided and clearly lay out why the cardholder’s chargeback claims are invalid.

Discover will review your representment package, along with the cardholder and issuer’s evidence, within 90 days of submission. After that, the card network will either uphold the chargeback in the cardholder’s favor, or reverse the dispute in yours.

Acceptable Evidence for Discover Reason Code RM Responses

To maximize your chances of successfully challenging an invalid reason code RM chargeback, you should provide relevant and compelling evidence that directly refutes the cardholder’s claims.

Examples include transaction documentation, written correspondence, or verified reviews that shows the cardholder was content with the quality of goods or services. You can also provide proof that:

• you already refunded the cardholder the amount under dispute.
• you exchanged the goods or services under dispute to correct for quality issues.
• the cardholder rejected your attempt to offer a refund or exchange.
• the cardholder didn’t cancel or reject the merchandise and is still in possession of it.
• you resolved the cardholder’s claim to their satisfaction.
• the quality of goods and services sold met your established policy.
• the dispute is due to an inconvenience not covered by reason code RM.
• you or the acquirer did not alter or substitute the currency related to the transaction.
• you processed the transaction under dispute using a voucher.
• you sold original, not counterfeit goods.
• the cardholder signed up to receive electronic goods or services.

You can show documentation outlining the terms agreed to by the cardholder that shows you did not misrepresent the quality or nature of the goods or services sold. Also, delivery receipts or work orders that show you delivered the goods or services as instructed by the cardholder.

For card-not-present (CNP) transactions, specifically, you can submit a copy of the cardholder’s ID or signature on the pick-up form (for “site-to-store” card-not-present transactions only). Or, details about a cardholder’s email or IP address, date and time of download, description of goods downloaded, or log documenting the receipt of downloaded material on or after the date the transaction occurred.

How to Prevent Discover Reason Code RM Chargebacks

Chargebacks result in significant financial consequences. The 2024 Chargeback Field Report, citing data from Mastercard, reports that merchants lost $117.46 billion to chargebacks in 2023. 

But, these losses are not inevitable. By taking proactive steps, you can preserve revenue and prevent disputes. We recommend that you:

Chargebacks under reason code RM can be costly and damaging to your business. But with the right strategies, they can be mitigated.

As powerful as prevention can be, however, it’s not an easy task. The complex chargeback process, the rapid rise in friendly fraud, and ever-evolving dispute guidelines makes it challenging to design and implement a chargeback management alone.

That’s where expert advice from industry specialists comes in. Chargebacks911®’s fully-customizable suite of prevention and representment solutions can help you safeguard your revenue and reputation. Get in touch with us for a free, no-obligation ROI analysis today.