When a Customer Disputes a Charge, What are Your Rights as a Merchant?
In a perfect world, consumers and merchants would coexist in harmony. Consumers could purchase products and services that the merchant sells, and the merchant makes a profit from each interaction. Fantastic, right?
Unfortunately, that picture is a far cry from reality.
Disputes between merchants and consumers happen all the time. Cardholders need clear, codified rights to protect their interests when disputes occur. But then again, so do merchants like you.
What are your merchant chargeback rights? Why are they important, and most importantly, what can you do to protect your business against chargeback abuse? We’ll explore those questions in this article and provide tips to help you fight for your rights.
Recommended reading
- Chargeback Laws: What's the Legal Basis for Card Disputes?
- American Express Chargeback Time Limits: The 2024 Guide
- Chargeback Time Limits: the Merchant's Guide for 2024
- What is the The Fair Credit Billing Act?
- Explaining Section 75 of the Consumer Credit Act
- What is the Restore Online Shoppers' Confidence Act?
9 Essential Merchant Chargeback Rights You Need to Know
Each card scheme has its own regulations. So, a merchant's specific credit and debit card chargeback rights often vary. This is further complicated because the rights for each incident are based on the reason code.
We can still make some general statements about merchant chargeback rights and liabilities, though. As a merchant, you have these rights in every chargeback case:
1. | The Right to the Original Price
The chargeback (or multiple partial amount chargebacks added together) cannot exceed the original transaction amount. The issuer can only file a chargeback for:
- The total original transaction amount
- A portion of the original transaction amount
The chargeback can include shipping or handling fees for an item not received and any surcharges applied to the disputed transaction. However, the bank can’t increase the price of the transaction by adding undelineated fees or penalties. All costs associated with the original purchase must be tallied in with the chargeback total.
Yes. Your acquirer will usually charge you with a nonrefundable chargeback fee to cover their administrative costs. This right only stipulates that those fees cannot be tacked on to the chargeback total. They must reflect the bank’s internal chargeback processes.
2. | The Right to Zero CashBack Disputes
If a cardholder gets cash back as part of a transaction, they may not file a chargeback for the cash-back portion. This means that a cardholder cannot file a chargeback for a cash withdrawal or an item they had already returned for cash.
To illustrate this, let’s say a cardholder purchases an item from you and receives cash back with the transaction. They cannot then file a chargeback on that transaction and try to double their cash back.
3. | The Right to Late Delivery Exemption
If a purchased item arrives after the agreed-upon delivery date, but if the merchant has verifiably abused no shipping policies, the cardholder has to prove they attempted to return the item to the merchant before filing a chargeback.
In other words: just because a consumer is impatient for an item to be delivered, this does not grant them the right to a chargeback. They must try to work out a solution with the merchant first. It’s also the issuer’s responsibility to ensure this occurs before allowing a chargeback.
4. | Attempt to Resolve Before Chargeback
Going off that last point, many reason codes explicitly require the cardholder to contact the merchant and resolve the issue before filing a chargeback. Again, the issuer is obligated to verify this action.
Cardholders should always try to resolve problems with merchants before taking any steps to initiate a chargeback. This is true regardless of the complaint in question. For an issuer to ignore this step and skip directly to a chargeback without insisting that the cardholder contact the merchant first infringes on the merchant’s chargeback rights.
5. | The Right to Reason Codes
When a bank files a chargeback, they attach a numeric code called a chargeback reason code to the case. This is is a 2- to 4-digit alphanumeric code meant to identify the reason for the dispute.
Each of the major card networks—American Express, Discover, MasterCard, and Visa—has its own specific codes. Payment service providers like PayPal may also have unique codes, too.
Reason codes can be deceptive. In friendly fraud cases, for example, the reason code is explicitly a cover for the cardholder’s actions. However, the reason code is still an important indicator of what the cardholder’s claim is, and how the merchant should respond. Thus, the merchant has a right to know the reason code attached to each chargeback, which can help them build a case for representment.
Stand up for your rights.
We’re here to help.
6. | The Right to 15 Days
What if a cardholder sends merchandise back as part of a return, but the merchant never returns their money? The cardholder can file a chargeback; however, the issuer must wait 15 calendar days from when the return was made to process a chargeback.
This right is most relevant to partial chargebacks or returns that merchants haven’t fully processed. This gives merchants a chance to issue the complete refund before a chargeback is filed. It also helps reduce the risk of so-called “double refund” chargebacks.
One important exception to this rule is any case in which waiting 15 days will exceed the chargeback filing deadline. If the chargeback filing deadline is less than 15 days away, the issuer may bypass this merchant chargeback right.
7. | The Right of Product Returns
The merchant has a right to have the merchandise in question returned to them in the event of a chargeback.
If customers initiate a return or a credit card chargeback, merchants have the right to send customers demand letters that insist customers return the products received. When the items are not returned, it is generally because the cardholder has denied that they received the items.
If that were true, the cardholder would be justified in their refund request. If they did receive the item and are claiming they haven’t, this is a case of friendly fraud, and it is unfortunately up to the merchant to prove it. Most issuing banks fail to investigate customer disputes thoroughly, though. As a result, merchants often end up losing their merchandise.
If the merchant has proof that the items in dispute were delivered to the merchant, and has transparently communicated that fact to the cardholder, then the merchant is entitled to fight back.
8. | The Right to Representment
The most important of all the guaranteed merchant credit card chargeback rights is the right to fight back against illegitimate chargebacks. In fact, you could even think of this as more than a right; it could be considered a responsibility.
Engaging in representment discourages cardholders from abusing the chargeback process. If it's faster, easier, and more effective to ask for a refund, fewer customers will default to a chargeback. It also sends a powerful message to banks, incentivizing them to engage in more due diligence, which makes the system fairer for everyone:
Processors would manage less risk
Merchants would have fewer costs
Consumers would react differently to purchases
Less overall chargeback fraud would be committed
Consumers could pay lower prices due to less fraud
9. | The Right to Arbitration
As we often warn merchants, mistakes made during representment can come back to haunt you. If you leave out any pertinent details that the bank requires, your claim will be summarily rejected. You could be inviting a secondary chargeback, or pre-arbitration chargeback.
Once the matter has reached this stage, the merchant has a choice to make: either accept the chargeback, or proceed to arbitration. If they choose to go to that final step, then the card network will step in and make a final, impartial decision. This takes the question out of the issuer’s hands.
Remember, though: arbitration comes with hefty fees and penalties for the party ultimately found responsible. Merchants should never enter into this process lightly.
Merchants Must Stand up for Their Rights
We think merchants should always be prepared to fight back against chargebacks. After all, if you have proof that a chargeback is illegitimate, you're simply throwing money away if you don’t contest it.
In such cases, we urge you to dispute the transaction with your merchant account provider. Remember: every invalid chargeback you ignore will increase your chargeback ratio and negatively impact your bottom line.
Unfortunately, the burden of proof rests on your shoulders. You have to keep meticulous records of every transaction, and focus heavily on customer service and satisfaction. And, if you intend to challenge a chargeback, you will need to provide evidence including:
- Copies of the sales receipt and/or order forms
- Tracking numbers and proof of delivery
- A copy of your return policy, with evidence it is easily accessible on your site
- Descriptions and screenshots of items as they appear on your site
- Any communications indicating successful delivery or customer satisfaction
Ask the Experts
If you’re one of the merchants who assumes chargebacks are just a part of life, it is time to stand up for your merchant chargeback rights. Fight back!
Chargebacks911® fights chargebacks on your behalf, offering the industry's only performance-based ROI guarantee. Contact us today to see how you could recoup more profits and send a valuable message to the credit card industry at the same time.
