The Funds Transfer Alliance Says Down with Chargebacks

Scenario: You rent a limo-bus for your daughter’s 21^st birthday to squire her friends and the rest of your family around town to celebrate. You give the driver a deposit and the itinerary up front. Everything is set and ready to go until the chauffeur arrives 45 minutes late without working air conditioning in August in Arizona, the bus gets a flat tire along the way, and the driver tells you your time is up as scheduled despite being late and doesn’t seem to acknowledge any problem with any of it.

You attempt to negotiate but get nowhere. So you initiate a chargeback hoping the card issuer will hold the limo company responsible for their failures. Who is responsible for figuring this all out?

Daphnie: Ninja Puppy

Regardless of who’s responsible, chargebacks are excessively unfun for everyone except very unscrupulous customers who attempt to game the system. Most diligent business owners will have very few chargebacks over the life other their business but every once in a while one can sneak up and bitecha like my ninja puppy! Hopefully this article will reveal a little insight about how the industry views them and how you have the best opportunity a result in your favor.

A chargeback can be initiated by the cardholder, your customer, or a Card Issuer (Visa, AmEx, etc.). If it is not decided in your favor as the business owner, your processor will debit your settlement account or settlement funds for the amount of the chargeback and any fees, assessments, and fines that are tacked on depending on the findings concerning your sales practices. While Discover Card prohibits you from doing so, if you have the cardholder’s contact information it is strongly recommended that you contact them to attempt to resolve the dispute so that it is not left to the card issuer’s discretion.

When a chargeback is initiated, you will get an information request asking for transaction documentation. Do everything within your power to respond in the allotted time frame with all pertinent information related to the transaction to have any hopes of reaching a decision in your favor.  Report as much information as you can about the transaction, make every document copy as legible as possible, and include any additional evidence you feel verifies your position about the validity of the transaction.

The most common chargebacks fall into one of the following categories:

1)   Authorization issues such as an expired card

2)   Cancellations and Returns

3)   Fraud

4)   Non-receipt of Goods and Services

5)   Processing errors such as an altered amount or transaction exceeding limited amount

6)   Quality of goods and services for defective or not-as-described merchandise

7)   Non-receipt of information including those cases where the cardholder does not recognize the transaction

Some things to remember:

1)   A valid approval authorization normally has a 4-6 digit number and response of “Approval.” A “Pick-up” response means the card is lost or stolen and you should retain and return it to the acquirer for a refund. Additionally, a referral authorization response indicates you should call the Voice Authorization Center.

2)   For recurring transactions, make sure your customers understand the nature of the arrangement, it’s an excellent practice to pre-notify customers of upcoming payments, and if your business is web-based, make sure the customer acknowledges the cancellation policy.

3)   To avoid fraud, make sure the imprinted card number matches the printed receipt, imprint cards you can’t swipe, get the cardholder’s signature and compare it to the sales draft.

4)   When the item or service is being pre-ordered, don’t process the transaction until the merchandise is shipped, don’t process any card where another method will be used to pay, and be sure to notify customers of the cancellation policy when they are ordering.

5)   Batch out and settle your terminal daily, do not alter an imprinted receipt for any reason, for telephone orders, repeat the account number back to the customer, and make sure your terminal reader is working properly.

6)   Ensure all merchandise is shipped properly, packaged well, and customers are aware of your return polices.

7)   Always prepare legible sales drafts at the time of sale, retain copies of all transaction documents for at least 18 months, and ensure your name is recognizable when people see the charge in their statement.

In the case above, what do you think happened? Was the limo company held accountable for their very poor customer service? Not exactly. While no one would argue the experience was provided as anticipated, this was a dispute for small claims court and not one for the acquirer to mediate. Because the product was provided and it was a close approximation of the what the customer expected, the chargeback was not enforced and the company kept their money.

If you have any wild chargeback stories, we’d love it if you’d share them below for other people to learn from!