What is Involved in the Chargeback Arbitration Process?
Chargebacks are a consumer protection mechanism, providing an opportunity for cardholders to dispute a credit card transaction. Like all other types of formal disputes, arbitration is available in situations where a decision can’t be reached.
Merchants, consumers, and banks have the option to appeal to an arbitrator to settle a dispute that isn’t resolved with a chargeback. Both MasterCard and Visa have regulations regarding the chargeback arbitration process.
The MasterCard Arbitration Process
Before diving into arbitration, it is beneficial to review MasterCard’s transaction and chargeback process.
- First Presentment: The merchant process the original transaction.
- First Chargeback: The issuer or cardholder disputes the transaction.
- Second Presentment: The merchant re-presents the transaction, accompanied by supporting evidence that contradicts the cardholder’s claim (a process known as representment).
- Arbitration Chargeback: The issuer disputes the merchant’s second presentment.
MasterCard’s complex arbitration process comes on the heels of its equally detailed chargeback process. Merchants are advices to carefully review MasterCard’s policies and regularly check for updated regulations. Below is a brief overview of MasterCard’s chargeback arbitration process.
Arbitration Time Limits
For MasterCard Dual Message System transactions, the filing customer must submit the arbitration case within 45 calendar days of the Central Site Business Date for the arbitration chargeback.
MasterCard will notify the non-filing customer of the action taken. The non-filing customer must supply additional information and necessary supporting documentation within 8-10 days of notification.
The issuer is allowed to respond to any new information at any time until the case decision is issued.
Arbitration Submission Requirements and Ruling Stipulations
Upon initial review, MasterCard can decline the arbitration case for various reasons:
- The filing customer didn’t supply sufficient documentation
- The case was filed beyond the acceptable time limit
- The case filing was not submitted in English
If an arbitration case is declined, the filing customer is responsible for the filing fee and any additional fees.
When ruling on a case, MasterCard will consider:
- The technical merits of the case
- The substance of the case
- Previous case rulings
- Implications to the MasterCard brand
The arbitration process involves the following fees:
- Filing fee: $150
- Administrative fee: $250
- Withdrawal fee: $150
- Technical fee: $100
If a customer withdraws before MasterCard issues a ruling, the withdrawing customer must pay the filing fee ($150) and a withdrawal fee ($150).
The customer ruled responsible for the case must pay the administrative fee ($250) and the filing fee ($150).
Technical fees ($100 each) are issued to any customer found in violation of the dispute processing rules. It is possible for a customer to win the arbitration case but still be assessed technical fees. Examples of violations include persisting with an invalid chargeback or processing a chargeback past the time limit.
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The Visa Arbitration Process
While similar to the MasterCard arbitration process, Visa does things a little differently.
It is advisable for merchants to carefully review Visa’s policies and regulations to fully understand the minute details of the chargeback arbitration process. The following is just a brief overview.
In certain situations, members must complete the pre-arbitration process before advancing to arbitration. For example, pre-arbitration is required if new information is provided or the issuer changes the reason code.
Members may advance the process to arbitration when:
- The chargeback process has been completed, but the members have not been able to resolve the issue
- The opposing member has not adhered to the required stages of the chargeback process
- The opposing member does not accept financial responsibility within 30 calendar days of the pre-arbitration attempt
Arbitration Documentation Requirements
Rules that apply to the arbitration documentation include:
- All documents must be in English.
- The case must include the required information outlined in the Visa Resolve Online Questionnaire for each transaction.
- All relevant supporting documentation must be included.
- Members cannot submit documentation or information to Visa that was not previously made available to the opposing member.
Arbitration Submission Requirements and Ruling Stipulations
Upon initial review, Visa may determine the arbitration request is invalid and reject the case. If an arbitration case is rejected, the filing member is responsible for the filing fee and any additional fees.
Visa may base its arbitration decision on the following:
- All information made available during the arbitration process
- Visa rules effective on the transaction date
- Other factors of consideration, such as ensuring fairness for both members
The responsible member may appeal the arbitration decision if both of the following conditions apply:
- New evidence emerges that was not available at the time the original case was filed.
- The disputed amount is $5,000 or more.
Visa’s Arbitration and Compliance Committee can assign full liability to one member or split the responsibility between the two parties.
The responsible member(s) must pay:
- The transaction amount
- The review fee
- The filing fee
Non-compliance assessment can be charged to either member for technical violations of Visa’s rules. It is possible for a member to win the arbitration case but still be charged non-compliance assessments.
Arbitration needlessly extends the chargeback process, adding additional costs and responsibilities for the merchant. To ensure the most efficient use of your business’s resources, it’s best to avoid arbitration whenever possible.
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MasterCard’s Chargeback Guide, Chapter 6, Arbitration Procedures, last updated October, 2014
Visa Core Rules, and Visa Product and Service Rules, sections 1.11 and 11.2, last updated April, 2015