Pre-Arbitration ChargebackDon’t You Hate Fighting Disputes That You’ve Already Won?

The Pre-Arbitration Chargeback Process, Explained

Challenging a chargeback through representment is usually a complex process. It requires excellent records, the most damning evidence, and the most compelling argument.

For better or worse, disputes get resolved by the bank’s representment decision. But, if the cardholder or issuer still has serious doubts (and some evidence), they have the option to reject the decision in the dispute you just won. The transaction amount will be removed once more — at least temporarily — from your account.

So, what happened? You’ve just been hit with a pre-arbitration case. This could cost you more, and could turn out to be a bigger pain, than the original chargeback. Don’t panic, though: in this post, we’ll take a good overall look at pre-arbs, how they work, and how to avoid them.

What is Pre-Arbitration?

Pre-Arbitration

[noun]/prē • är • bə • trā • sh(ə)n • charj • bak/

A pre-arbitration is a case filed by an issuing or acquiring bank after a chargeback has already been reversed. The issuer usually initiates them if further evidence or argument is presented by the cardholder concerning the original dispute.

Pre-arbitrations, or “pre-arbs,” are sometimes referred to by different parties as pre-arbitration chargebacks. This is incorrect terminology, though. According to Visa, pre-arbitration is the correct term.

Many people also mistakenly use the term “arbitration chargeback” interchangeably. While they may seem like the same thing, they’re not. Instead, consider each to be a step in the final representment process (more on this later).

Pre-arbitrations happen after the resolution of a chargeback representment. The losing party (the cardholder) refuses to accept that the other party has won the case. For example, a cardholder disputes a sale by filing a chargeback, but the bank decides for the merchant. The buyer then digs up additional evidence and disputes that transaction a second time. The bank would then file a pre-arb in response.

Why Do Pre-Arbitrations Happen?

For the most part, issuers aren’t going to approve pre-arbitrations unless the cardholder can provide further evidence to prove their claim.

The issuer receives and reviews evidence from the cardholder following a chargeback representment. The issuer may then review the reason code, and find that there was information which the merchant left out or falsified. Whatever the case, the merchant has either made a mistake or forgotten to include crucial evidence that the cardholder could provide. In response, the bank submits a chargeback pre-arbitration.

Once a chargeback reaches pre-arbitration, you’ll have exactly two options: accept the chargeback, or decline it and escalate to arbitration.

All decisions regarding the original chargeback from this stage will be final, because arbitration is a “hard stop” in the chargeback process. The only exception might be if you can provide new, additional evidence. It would have to be extremely convincing, though, and you’ll have to pay an additional fee.

Pre-Arbitration vs. Arbitration vs. Second Chargebacks

Once upon a time, Visa was the only card network using the term pre-arbitration to refer to a secondary chargeback. Now, most brands follow Visa’s nomenclature.

“Second chargeback” is not a term used by most issuing banks. Having said that, when someone mentions a second chargeback, they're almost always talking about pre-arbitration on a chargeback.

In short: pre-arbitration (or a “second chargeback”) is a process through which issuers or acquirers can contest an initial chargeback. Arbitration, on the other hand, is when a pre-arb isn’t enough to resolve the issue to everyone’s satisfaction. So,  a representative of the card network is asked to intervene and make a (final) judgment.

How Do Pre-Arbitration Claims Work?

Pre-arbitration will always be a post-representment step. Before any chargeback case can proceed to arbitration, the parties need to go through all the other phases in the dispute process.

Visa label a particular phase of the process “pre-arbitration.” But, the phrase is used in two different ways because different methods relate to different types of Visa disputes.

Since implementing Visa Claims Resolution (VCR) rules, all Visa disputes are divided into one of two workflows. There’s an “Allocation” track for fraud and authorization issues, and a “Collaboration” track for consumer and processing errors. We'll look at the two individually.

Pre-Arb Chargebacks in the Allocation Workflow

Responsibility is assigned automatically in cases that involve either fraud or authorization issues, based on established rules. Visa assesses the complaint data, decides whether it constitutes a valid dispute, and makes the call. That’s that.

Well… almost.

If Visa rules in favor of the cardholder, acquirers and merchants have a limited ability to challenge. Certain conditions apply, and Visa only allows a 30-day timeframe (individual acquirers typically set even tighter deadlines).

Visa calls this the pre-arbitration phase, but it consists of what would traditionally be considered representment and (if they rejected the representment ruling) the pre-arbitration chargeback. Broken down, it would look something like this:

Pre-Arb Chargebacks in the Collaboration Workflow

To muddy the waters even further, Visa chargebacks that stem from either consumer dispute or processing errors are resolved through the Collaboration track. Here, the process is more similar to that used by Mastercard:

As the name suggests, the Collaboration track is designed to encourage all the involved parties to work together. The aim is to resolve the claim without Visa's direct involvement; the card network should only get involved if absolutely necessary.

Overall, VCR has been considered a positive evolution of the chargeback process. The naming conventions, however, have caused more than their share of confusion. 

Can Merchants Win Pre-Arbitrations?

It can be done. But, the odds are not exactly in your favor.

Winning a chargeback case is never guaranteed to be the end of the line. A dispute case won through representment can become one of these cases in almost any instance.

It might seem reasonable to give merchants that option, but in reality, merchants rarely win a second dispute decided through arbitration. This is because the card networks usually default to the most expedient solution (as we noted above), for starters.

Another reason is that issuers typically file a pre-arb because they have new information to support their case. You, on the other hand, probably already submitted all relevant evidence. If you submitted their best rebuttal package, you likely used everything you had to fight the original chargeback.

It's also not financially advantageous to take cases through arbitration. Additional fees apply, sometimes totaling thousands of dollars. Plus, there’s also a considerable outlay in terms of time and other resources.

Winning a pre-arbitration dispute isn't impossible. But, unless the transaction dollar value is very high, it may not be worth it.

Preventing Pre-Arbitration: A Better Alternative

Representment and pre-arbitration are expensive, time-consuming processes for merchants. The odds of winning a second or pre-arbitration chargeback are slim.

The entire process is complex. You’ll have to deal with multiple parties and constantly shifting regulations. Fighting for yourself amid all of this can be daunting, at best.

It's better to proactively stop pre-arbitration from happening. They key is to definitively win chargeback disputes during the initial representment, while aiming to prevent chargebacks in the long term.

Chargebacks911® has an experience-backed reputation for customized chargeback management solutions. We guide merchants through all phases of the chargeback process, letting them refocus their attention on business growth and sustainability.

Ready to learn more? Have other questions about avoiding pre-arbitration chargebacks? Click below to speak with one of our experts and start eliminating chargebacks today.