How to Prevent Double Refund Chargebacks & Unnecessary Revenue Loss
If there’s one thing worse than a chargeback…it’s getting hit with a double refund chargeback.
A double refund occurs when a customer manipulates the chargeback process and gets refunded twice for the same transaction. One refund comes directly from you, but you’ll be financially responsible for both of them. You’ll also lose the cost of the product, shipping fees, overhead, and associated chargeback fees.
A double refund chargeback can happen inadvertently. However, an increasing number of consumers are discovering that they can play the chargeback system to their advantage. An intentional scam of this type is illegal, but there are loopholes that allow consumers to get away with it.
Criminal fraudsters are getting in on the act, too. More savvy criminals will use tricks to avoid suspicion. They may allow some time to pass between the refund and the chargeback. They might even request a partial rebate, just to throw you off their trail.
What Is a Double Refund?
- Double Refund Chargeback
A double refund chargeback occurs when a cardholder requests a refund for a transaction, then files a chargeback for the same purchase. The merchant dutifully refunds the charge, unaware that the cardholder plans to dispute the charge and get their money back twice.
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It’s not unusual for a customer to ask you for a refund. For the most part, these are legitimate requests. Providing a refund doesn’t guarantee that that customer won’t attempt to file a chargeback later, though.
By the same token, a customer who files a chargeback may also turn around and contact you to demand a refund. In fact, we may be able to link over 10% of all chargebacks to a double refund after dispute situation. Let’s look at a couple of scenarios:
- Chargebacks filed after you’ve issued a refund: The consumer contacts you, requesting a refund. You honor the request. The funds, however, don’t show in the customer’s account when expected. The customer files a chargeback, assuming you ignored or denied the refund request. Both the chargeback and the refund get processed.
- Chargebacks filed before a refund is issued: The consumer contacts the bank and initiates a dispute. The same customer then contacts you and requests a refund. You want to avoid a chargeback, so you issue the refund…not realizing they already filed one.
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Either of these situations could develop innocently and organically. Your customer may actually believe you forgot about the refund. They could also contact you for a refund after contacting the bank, unaware that the bank already started the chargeback process.
Increasingly, however, bad actors leverage the double refund chargeback as a tool for scamming merchants. If the bank doesn’t notice the discrepancy and you don’t fight the claim, the fraudster keeps all the money. You, on the other hand, lose more than twice the original cost of the transaction, when accounting for fees.
How to Prevent Double Refund Chargebacks
Both Visa and Mastercard implemented new procedures to avoid chargebacks for refunded purchases. For example, both brands now mandate a return authorization for all return transactions. To process a return, you must first obtain authorization. In other words, it’s the same procedure as seeking authorization for an initial purchase, but in reverse.
Cardholders can see the authorization immediately on their online statement. They can track the funds until the money gets deposited in their account.
Return authorizations are a step in the right direction, but they aren’t a guarantee against a double refund after disputes. Mitigating double refund risk calls for a diversified approach. The mix of different tools and tactics you need depends on whether you’re being wholly proactive, or trying to stop double refunds after disputes have been filed.
Preventing Double Refund Chargebacks: Before a Dispute
Preventing chargebacks—and the subsequent double refunds—is a straightforward process. You provide prompt responses to valid refund requests, and communicate with customers as the refund progresses:
- Alert customers when you begin processing their refund request.
- Send an email when you issue the refund.
- Provide an estimate as to when the funds will be available.
- Follow up to ensure the customer received the refund.
Preventing Double Refund Chargebacks: After a Dispute
If a customer dispute already exists, preventing double refund chargebacks can get trickier. Still, many issuers allow a small window to resolve issues before disputes escalate to chargebacks. The size of this window varies by issuer. It does give you an opportunity to assess the situation and take preventative steps, though.
When a cardholder calls to request a refund, they may mention that they just spoke to their bank. That’s a red flag indicating a chargeback may already be underway. Check to see if the cardholder’s bank assigned the transaction a case number. This is a clear sign that the dispute already graduated to a chargeback. That’s not ideal, but offering a refund on top of it would be worse.
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If you learn the customer already contacted the bank, you immediately need to call that issuer to check for a case number:
- If a case number is assigned, simply disregard the refund request. The chargeback is already underway.
- If a case number is not assigned, inform the bank that a refund has been initiated and the chargeback is not necessary.
Once a claim has a case number, the damage is done. Even if you’re able to reverse the chargeback through representment, your bottom line and chargeback-to-transaction ratio will impacted. No one wants a chargeback, but don’t try to issue a refund beyond this point: doing so will only lead to a double refund chargeback.
Double Refunds & Representment
So, you refunded a cardholder twice. The issuer didn’t catch it, so you’re left bearing the full loss. What are your options now? This chart helps explain the different situations and outcomes:
|a chargeback is illegitimate and a refund wasn’t warranted||
|a chargeback results from a valid consumer complaint||
|you issue a refund but the customer files a chargeback anyway||
The representment process offers an opportunity to recover your funds. It’s also complex and time-consuming, though, and demands detailed recordkeeping. Learn more about the chargeback representment process here.
Chargeback Management to Prevent Double Refunds
You can mitigate the risk of double refund chargebacks through effective chargeback management, a properly trained customer service department, and attention to detail. That typically adds up to a lot of work, but not to worry…we can help.
Our end-to-end service platform prevents more chargebacks, wins more reversals, and maximizes your ROI. For more information, contact Chargebacks911® today.
What is a double refund chargeback?
A double refund occurs when a buyer manipulates the chargeback process to get refunded twice for the same transaction; a merchant refund, plus a chargeback. One refund comes from you directly, but you’ll be financially responsible for both of them.
Can customers keep all of a double refund?
No. If unearned or unwarranted funds are deposited into an account, and the account owner is aware of the situation, there is a legal obligation to repay the money.
Do refunds count as chargebacks?
No, standard refunds do not count as chargebacks.
Does a double refund chargebacks still count as a chargeback?
Yes. You may be able to stop a customer dispute before it escalates to a full-fledged chargeback, but after that, you will have to pay chargeback fees. It will also negatively impact your chargeback ratio.
What is the difference between chargeback and refund?
Refunds are provided by the merchant in exchange for the return of a purchase. Chargebacks are forced payment reversals in which the consumer typically does not return merchandise to the merchant. The merchant will also be hit with an additional chargeback fee.