Can You Make a “No Chargeback Agreement” With Your Customers?
We get it: as a merchant, you’re fed up with chargebacks. Wouldn’t it be fantastic if you could add a “no chargeback” clause to your terms of service that would stop the madness altogether? Does such a solution even exist?
In this article, we’ll discuss ‘no chargeback agreements’, why they aren’t really an option, and how best to avoid chargebacks in the first place.
A great place to start this discussion is by taking a look at your terms of service.
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How Your Terms of Service Affect Chargeback Management
Your terms of service can, in some cases, affect your chargeback ratio. One of the more compelling items of evidence in a chargeback representment case is the customer’s signature on a ToS announcement pre-checkout.
Technically, every sale you make is an agreement. You, the merchant, agree to hand off goods or services in exchange for compensation from the cardholder. The cardholder, therefore, agrees to pay in exchange for goods or services you provide. This is a contract which is legally binding for both you and the cardholder, within the framework of the terms and conditions laid out at the time of the purchase.
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Chargebacks often occur due to perceived breaches of these terms of service by the merchant. This can lead to disagreements between the merchant and cardholder.
Some of the most common claims that cardholders make in connection with chargebacks include:
Delayed / Refused Refund Response
When cardholders request refunds, they expect rapid response. If your ToS clearly states that the cardholder should have received a refund they requested within a given timeframe, but they did not receive that refund, the bank will approve a chargeback.
Canceled Goods and Services
If the items or services were canceled, but a refund was never issued to the cardholder, the bank may intervene with a chargeback. Even if your ToS stipulates that you do not process refunds for canceled items or services, factors like timeframe, circumstances for the cancellation, and suspected fraud may be grounds for the bank to file a chargeback.
Canceled Subscription Billing
Most subscription services allow cardholders to cancel their subscriptions before the next billing cycle. Still, cardholders don’t always exit at the beginning of a billing cycle. They may wish to be reimbursed for the difference instead. If your terms of service permit them to cancel and be reimbursed for the mid-cycle cancellation, the bank might consider their request valid and approve a chargeback.
Items Not as Described
This one is pretty versatile. Essentially, if your terms of service promise one thing, and it could be reasonably argued that the cardholder expected something else, then the bank may approve a chargeback.
The above examples highlight the importance of considering what you include (and don’t include) in your terms of service regarding returns. If that’s the case, though, shouldn’t it be possible to simply write a “no chargeback agreement” into your terms of service?
The short answer: not really.
Do “No Chargeback Agreements” Exist?
Technically, you’re free to write a no-chargeback agreement into your policies. Remember, though: the cardholder's bank is the judge here. Plus, they have the power of the law in their corner.
Cardholders are guaranteed the right to recover funds unfairly charged to their account under the Fair Credit Billing Act. By the very act of filing a chargeback, the buyer is implicitly making one of the following claims:
The purchase was not authorized
Someone other than the cardholder or another authorized user made the purchase. Therefore, the cardholder never agreed to your ToS, because they never authorized the transaction.
You didn’t live up to your end
of the bargain
You, as the merchant, failed to provide the goods or services stipulated under the ToS, thereby invalidating the "no chargeback" agreement. So, whichever way you slice it, the no chargeback clause would not hold up.
You could use such your no-chargeback clause as evidence if you wanted to take the case to arbitration by Visa and Mastercard, or even all the way to small claims court. However, the results would largely be the same.
Whichever way you slice it, a "no chargeback agreement" would not hold up to scrutiny. A better approach is to shift focus where it would be most effective: chargeback prevention.
4 Tips to Prevent Chargebacks WITHOUT a No Chargeback Agreement
As we’ve mentioned, there's no way to guarantee you won't see any chargebacks except to stop accepting card payments. Whatever choices you make, however stable your systems and best practices…you may never rid yourself of them entirely.
The best strategy is to take steps to prevent a chargeback from happening in the first place. Here are a few ideas that can kick your chargeback prevention efforts into high gear:
Step 1 | Refine Your ToS
While your terms of service can’t prevent chargebacks outright, they may help filter out some of the more easily-preventable chargebacks. A good ToS agreement can help you fight chargebacks by:
- Making your return policy clear, informative, and helpful to customers.
- Ensuring your terms of service are clearly visible and easy to find.
- Asking customers to sign in before proceeding to checkout.
- Emailing customers a copy of their receipt with every purchase.
This won’t prevent all chargebacks. That said, refining your ToS can certainly help eliminate a lot of misunderstandings that can lead to disputes.Learn about policies that prevent chargebacks
Step 2 | Optimize Customer Service
Outstanding customer service should be a no-brainer. Many chargebacks can be nipped in the bud right then and there by simply making yourself available and receptive to your customers’ needs. This is reliant on maintaining close communication at each stage of the process (fulfillment, shipping/tracking, and delivery information), and providing authentic marketing that keeps its promises to consumers.
Taking this a step further, you must make sure customers can reach you at their convenience. There’s no such thing as “regular business hours” when you’re a global eCommerce seller.
You can meet this challenge using chatbots, live customer service via phone and email, and autoresponders. The goal is that you want your customers to view contacting you as the more convenient option, rather than contacting the bank.Learn about customer service best practices
Step 3 | Use the Right Fraud Detection Tools
Don’t forget: customer service isn’t everything. Sometimes fraud is your culprit.
Several prevention methods have been proven to help detect fraud and validate cardholders. You should take advantage of these readily available prevention tools. Network tools such as Address Verification Service (AVS), card security codes (CVV), and 3-D Secure 2.0 (3DS2) are all methods of validating a shopper’s identity. Using these and other tools together can improve fraud detection accuracy.
There are other chargeback prevention tools available as well. Chargeback alerts, for example, provide advance notice of disputed transactions. Automated response programs offered through the card networks, like Order Insight (for Visa) and Consumer Clarity (for Mastercard), work in real-time to resolve inquiries.Learn about fraud detection tools
Step 4 | Best Practices Get the Job Done
Merchant error accounts for more chargebacks than you may realize. Errors like submitting incorrect information or not requesting authorization for CNP (card-not-present) transactions often result in chargebacks. Chargeback triggers can be hidden throughout your practices, draining your time and revenue.
Thankfully, almost all chargebacks that result from merchant error are preventable. The trick is simply a matter of detecting and responding to them in time to stop disputes from being filed. If you evaluate all of your internal processes, from POS to transaction logs, the weaknesses in your practices should be readily apparent.Learn to prevent common merchant errors
The ‘No Chargeback Agreement’ That Works Best: Proaction
While a “no chargeback clause” sounds like a solution sent straight from heaven, the reality is that the chargeback process isn’t going anywhere. The best you can do is manage your business practices and seek out prevention strategies with realistic boundaries and implications.
An effective chargeback management strategy must be flexible enough to identify new trends and techniques, counteract new technology, and adapt on the fly to a constantly shifting landscape.
Chargebacks911 offers the most comprehensive chargeback management services and products available today. No other provider can deliver our level of transparent, end-to-end chargeback management, going beyond prevention to revenue recovery and future growth.
Whatever you need to prevent chargebacks, we can help. Contact us today for a free demo.