Lengthy Cardholder Time Limits Result In Delayed Chargebacks For Merchants
One of the many challenges of chargeback management is unexpected transaction disputes that catch the merchant off guard. These chargebacks often come as a surprise because extended cardholder filing deadlines result in delayed chargebacks for merchants.
Why Delayed Chargebacks Happen
Chargebacks are a consumer protection mechanism. Everything about the chargeback process is designed to protect the consumer’s best interests. Filing deadlines are no exception.
Thanks to online banking, consumers are able to keep a close eye on account activity and can swiftly take action if anomalies are detected. However, not all consumers are quick to spy account issues. It could take days or even months to notice something is wrong.
Other times, consumers won’t know there is a complication with the transaction until merchandise fails to arrive on their doorstep or other expectations aren’t met.
While helpful for consumers, these delayed chargebacks mean merchants are mysteriously losing revenue months after the original purchase was made.
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Chargeback Filing Deadlines
The chargeback time limits vary by network and reason code.
The shortest time limits apply to reason codes commonly restricted to bank chargebacks. The cardholder isn’t involved in these chargebacks because the issuer reacts to a perceived processing error.
Because there are fewer people involved, it takes less time to notify the merchant. Visa has several chargeback reason codes with short time limits, just 75 days from the transaction processing date.
- Declined Authorization
- No Authorization
- Expired Card
- Non-Matching Account Number
- Service Code Violation
MasterCard combines several related authorization issues into a single reason code: Authorization Related Chargeback. This reason code has a 90 day time limit.
The majority of consumer-initiated chargebacks come with a 120 day time limit. That means merchants receive extremely delayed chargebacks, nearly four months after the transaction took place!
Generally, the clock starts ticking the moment the transaction is processed. However, there are several reason codes, for both networks, that have conditional time limits.
Depending on the reason code, the 120 time limit might start on any one of the following dates:
- The delivery date
- The last anticipated delivery date when the provision of goods or services was delayed
- The day the cardholder realizes the goods or services won’t be delivered
- The day the services were canceled or the goods returned
- The day a credit document was issued (a document provided by the merchant alerting the consumer to a deserved refund)
- The day the cardholder realized the goods were counterfeit
- The transaction processing date of the balance portion of a delayed delivery
Complications Associated With Delayed Chargebacks
All chargebacks come with negative ramifications. However, the later the chargeback is filed, the more severe the consequences.
- If chargebacks are caused by merchant errors or processing glitches, these problems can continue for months without the merchant’s detection. It won’t be until the delayed chargebacks start pouring in that merchants will even know something is wrong.
- Unexpected chargebacks can cause serious cash flow issues.
- Chargeback ratios are calculated on a month-by-moth basis. If chargebacks come in significantly later than the merchant expected, they can cause rates to spike and penalties to be enforced.
Delayed chargebacks often catch a merchant unaware. However, the surprise isn’t necessarily warranted. There are ways to predict transaction disputes and management strategies merchants can use when anticipating chargebacks.
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