The Chargeback Process
Introduction
to the Chargeback Process
Chargeback
As a general rule, cardholders have the right to dispute any transaction
processed on a Visa/MasterCard. These disputes are called chargebacks,
and are governed by a series of rules set forth by these entities. In the
chargeback process, the burden of proof lies with the merchant. The
merchant will be given the opportunity to provide supporting
documentation to prove the legitimacy of the transaction. If the merchant
is successful, the transaction is credited back to his account. If the
merchant is unsuccessful, or does not respond in a timely fashion, they
will be financial responsible for returning funds to the consumer who
filed the dispute.
Summary of Chargeback Process
When a chargeback is initiated, the Issuer gives the cardholder
provisional credit. In turn, the Issuer sends a request to the merchant's
Acquiring Bank. The Issuing Bank is often required to submit the
documents that support the customer’s dispute. To facilitate the
handling of the dispute, we use an “auto-resolve” database that
automatically places the chargeback in a pending status, waiting for the
Issuing Bank documents to arrive. The system will auto-resolve the case
in the event the bank documents do not arrive and will send the
chargeback back to the Issuer. When the bank documents are received, the
system may place the case in a queue for a chargeback operator to
process, or automatically debit the merchant and generate the chargeback
letter.
The chargeback letter gives the merchant about 8-10
days to respond. No second warning is sent in absence of a response. At
times, the request comes in at a later time. It is IMPORTANT
that the merchant always checks the “Respond by”
date on top of the communication letter to insure that the response is
sent on time. A case number is assigned to each disputed
item. The merchant must attach the correct case number to each page of
the rebuttal paperwork. Cardholders may dispute a charge for various
reasons (i.e. “Non-Authorization”, “Merchandise not received”),
and often attach a letter of explanation to the output package.
Merchant’s rebuttal must address each one of the customer’s
complaints. A rebuttal letter containing the merchant’s point of view
should always accompany the paperwork. As a default, we send the letters
to the business address indicated by the merchant. Once the rebuttal
paperwork is received by the chargeback department, the case is reviewed
and, if applicable, it is reversed back to the Issuer. A credit to the
merchant for the transaction amount will be granted in that instance. In
the event the documents do not provide a valid reason to reverse the
dispute, the Chargeback Department will try to contact the merchant for
more information.
Chargeback fees will apply on each disputed
item. Fees are debited as follows:
• |
MO/TO - Internet accounts: fees are
debited immediately when the chargeback is
initiated by the Issuing Bank. |
• |
Retail accounts: fees are charged when the
chargeback is in the working stage at EVO, and the merchant is
given the time to respond. In the event the chargeback comes in,
but it is immediately reversed back to the Issuer with no request
of documentation on the merchant’s side, no charge will apply. |
Chargeback Cycle
|
Visa
First Chargeback initiated by Issuer
Representment (rebuttal) initiated by Acquirer
If there is no resolution, the Issuer can request the
Pre-Arbitration/Arbitration |
MasterCard
First Chargeback initiated by Issuer
Representment (rebuttal) initiated by Acquirer
Second Chargeback initiated by Issuer
Pre-Arbitration/Arbitration can be initiated by
Acquirer. |
Note:
Documentation for rebuttals needs to arrive
within 10 days for Visa and 8 days for MasterCard. The
“respond by” date is specified on
top of the merchant letter. The merchant must
respond prior to that date. |
|
Summary of Retrieval Process
Often the first step in the chargeback process is a request made by the
Issuing Bank for the transaction information document (TID),
or receipt. This request is called retrieval. The Acquirer is obligated
to fulfill this request by providing a copy of the transaction receipt.
Alternatively the merchant should respond to the Issuer explaining the
reason he cannot honor the request. A retrieval request can simply be a
request for the information, or could indicate that the Issuer will
initiate a chargeback in the near future.
Upon notification of the retrieval request, a letter
is automatically generated to the merchant. This letter states that the
merchant has a certain number of days (usually 10 days) to respond by
providing the indicated sales draft. On the 11th day, a second and last
letter is generated, and sent to the merchant. The sales draft must be
submitted to the Issuer on the 28th day from the moment the request has
been initiated.
A case number is assigned to each
request. The merchant must include the correct case number on top of the
TID. Once the merchant has responded to the retrieval, a chargeback
analyst will review the received documentation. In the event the sales
draft is illegible, wrong, or has missing items, the analyst will notify
the merchant via phone or fax, when available. If the merchant does not
respond within the given timeframe, no notification will be sent to the
merchant. A Good Faith Collection letter will be submitted to the Issuing
Bank when:
• |
The transaction has a POS entry of 90 (swiped), and
the signed sales slip is available; |
• |
For MO/TO transactions, the merchant matches the AVS (Address
Verification), and provides signed proof of delivery. |
No partial credit is granted to the
customer in the event of a retrieval request. As a result, the merchant
will not be debited for the transaction amount, unless the request turns
into a chargeback due to non response.
Chargeback
Details
I.
First Chargeback Phase:
A Cardholder writes a letter or fills out a
“Dispute Resolution Form” and submits it to their Credit Card Issuing
Bank. The Issuing Bank then processes a chargeback along with the
“Chargeback Documentation” (i.e. Cardholder letter) through the
corresponding Association (Visa or MasterCard) and thus is credited the
disputed transaction amount. The Acquirer or “Merchant Bank” then
receives notification of the Chargeback upon receipt of the “Chargeback
Documentation” and is subsequently debited for the disputed transaction
amount. At this point the Acquirer internal database assesses the
Merchant a “Chargeback fee”. Acquirer’s systems then run the
Chargeback through a series of simple filters to check to see if the
Merchant issued credit and for certain technical errors. At this point
one of two scenarios occurs:
1. |
If, via the filters, the Chargeback is deemed
invalid, Acquirer “Reverses” the Chargeback back through the
Association and eventually back to the Issuing Bank along with a
debit for the disputed amount. The Acquirer is then credited for
the amount in dispute. The Chargeback fee remains on the
Merchant’s account as this is a fee charged by the Associations
as a cost for processing the Chargeback. This “First
Chargeback” phase of the dispute is then considered “Resolved
To the Issuing Bank” and will remain closed unless the Issuing
Bank initiates a “Pre-Arbitration” notification (Visa) or a
Second Chargeback (MasterCard). |
2. |
If, via the filters, the Chargeback is deemed valid, the
Merchant’s business checking account is immediately debited for
the amount in dispute and a letter is sent to the Merchant the
same day advising of the debit and explaining what, if any,
documentation is required to “Reverse” this Chargeback. This
“First Chargeback” phase of the dispute is then considered
“Resolved to the Merchant” and will remain closed until the
Merchant responds back to the letter sent to them. |
II.
First Reversal Phase:
If the merchant does indeed respond with a
“Merchant Letter” back to the Acquirer, a “Reversal Phase” of the
dispute is opened and a Chargebacks Analyst will review the Merchant
Letter and will see if the merchant’s response and the overall dispute
qualify to be “Reversed” back to the Issuing Bank. At this point, one
of two scenarios will occur:
1. |
If the Chargebacks Analyst deems the Merchant’s
response as invalid, they will close out this
phase as “Request Denied” and will mail a letter to the
Merchant explaining why the Chargeback cannot be reversed back to
the Issuing Bank at that time. |
2. |
If the Chargeback Analyst deems the Merchant’s response as valid,
the Acquirer “Reverses” the Chargeback back through the
Association and eventually back to the Issuing Bank along with a
debit for the disputed amount. The Acquirer is then credited for
the amount in dispute and in turn credits the Merchant’s
business checking account. The Chargeback fee remains on the
Merchant’s account as this is a fee charged by the Associations
as a cost for processing the Chargeback. This “First Reversal”
phase of the dispute is then considered “Resolved To the Issuing
Bank” and will remain closed unless the Issuing Bank initiates a
“Pre-Arbitration” notification (Visa) or a Second Chargeback
(MasterCard). |
III.
Second Chargeback and Second Reversal Phase (MasterCard only):
Once a Reversal (and the subsequent debit) is
received back at the Issuing Bank, they will then forward the
“Merchant’s Letter” back to their Cardholder for a response. If the
Cardholder wishes to pursue the dispute further, they then send in a
“Rebuttal Letter” back to the Issuing Bank and if the Issuing Bank
feels that their response is valid, will submit a Second
Chargeback. A Second Chargeback functions just like a First
Chargeback, except a Chargeback fee is not assessed and the disputed
amounted is immediately debited out of the Merchant’s business checking
account. The Merchant is sent another letter explaining what, if any,
documentation is required to pursue this dispute further. This “Second
Chargeback” phase of the dispute is then considered “Resolved to the
Merchant” and will remain closed until the Merchant responds back to
the letter sent to them. If the Merchant does indeed respond to the
letter sent to them a ‘”Second Reversal” phase of
the dispute is opened. An Acquirer Chargeback Analyst will then review
the letter and one of two scenarios will occur:
1. |
If the Chargeback Analyst deems the Merchant’s
response as invalid, they will close out this
phase as “Request Denied” and will mail a letter to the
Merchant explaining why the Chargeback cannot be pursued further
at that time. |
2. |
If the Chargeback Analyst deems the Merchant’s response as valid,
they will submit a “Pre-Arbitration” letter
directly to the Issuing back advising that the Acquirer believes
the Merchant’s claim is valid and that Acquirer will request
MasterCard to make an Arbitration ruling on the dispute if the
Issuer disagrees with the Merchant’s claim.
a. |
If the Issuing Bank agrees with the
Merchant’s claim, they will simply forward the funds
back to the Acquirer and the Acquirer will then credit the
Merchant’s business checking account accordingly. The
dispute at this point is considered “Successful” and
cannot be re-opened. |
b. |
If the Issuing Bank disagrees with the Merchant’s
claim, they will send a letter back to the Acquirer
advising of such. The Acquirer will then send a form to
the Merchant requesting that they sign the form which
makes the Merchant liable for Arbitration filing fees.
(When MasterCard makes an Arbitration ruling, it assesses
a $400.00 filing fee to the loser of the dispute) If the
Merchant does not agree to the fees, the Acquirer simply
closes out the Second Reversal phase of the case as
“Unsuccessful”. If the Merchant does indeed agree to
the fees and submits the signed form, the Acquirer then
submits an Arbitration Request to MasterCard directly.
i. |
If MasterCard rules in the
Merchant’s favor, the Issuer is immediately
debited and the Acquirer is credited for the
amount in dispute and forwards the credit to the
Merchant’s business checking account. The
Issuing Bank is also assessed the $400.00 in
filing fees and the Acquirer closes this phase of
the dispute as “Successful” |
ii. |
If MasterCard rules in the Merchant’s favor,
the Issuer is immediately debited and the Acquirer
is credited for the amount in dispute and forwards
the credit to the Merchant’s business checking
account. The Issuing Bank is also assessed the
$400.00 in filing fees and the Acquirer closes
this phase of the dispute as “Successful” |
|
|
IV.
Issuing Bank Pre-Arbitration Phase (Visa only):
Once a Reversal (and the subsequent debit) is
received back at the Issuing Bank, they will then forward the
“Merchant’s Letter” back to their Cardholder for a response. If the
Cardholder wishes to pursue the dispute further, they then send in a
“Rebuttal Letter” back to the Issuing Bank and if the Issuing Bank
feels that their response is valid, will submit a “Pre-Arbitration”
letter directly to the Acquirer advising that they feel that their
Cardholder’s claim is valid that they will request Visa make an
Arbitration ruling on the dispute if the Acquirer disagrees with the
Cardholder’s claim. The Merchant is then sent another letter along with
the Cardholder’s rebuttal advising that they need to respond within 10
days. If the Merchant does not respond to the letter within the specified
timeframes, the Acquirer Chargeback Analyst will credit the Issuing Bank
back for the disputed amount and in turn debit the Merchant’s business
checking account. This phase of the dispute will then be closed as
“Unsuccessful”. If the merchant does indeed respond within the
specified timeframe, one of two scenarios will occur:
1. |
If the Chargeback Analyst deems the Merchant’s
response as invalid, they will close out this
phase as “Request Denied” and will credit the Issuing Bank
back for the disputed amount and in turn debit the Merchant’s
business checking account. The Chargebacks Analyst will also mail
a letter to the Merchant advising of the debit and will also
explain why the Chargeback cannot be pursued further at that time. |
2. |
If the Chargeback Analyst deems the Merchant’s response as valid,
the Acquirer will then send a form to the Merchant requesting that
they sign the form which makes the Merchant liable for Arbitration
filing fees. (When Visa makes an Arbitration ruling, it assesses a
$400.00 filing fee to the loser of the dispute) If the Merchant
does not agree to the fees, the Acquirer simply closes out the
Pre-Arbitration phase of the case as “Unsuccessful” and will
credit the Issuing Bank back for the disputed amount and in turn
debit the Merchant’s business checking account. If the Merchant
does indeed agree to the fees and submits the signed form, the
Acquirer then responds to the Issuing Bank advising them that they
do not agree with the Cardholder’s claim. The Issuing bank then
submits an Arbitration Request directly to Visa.
a. |
If Visa rules in the Merchant’s favor, all
funds remain where they are and in addition, The Issuing
Bank is assessed the $400.00 in filing fees. The Acquirer
then closes this phase of the dispute as “Successful” |
b. |
If Visa rules in the Issuing Bank’s favor, they are
immediately credited for the amount in dispute and the
Acquirer is immediately debited for the same amount and in
turn this amount is immediately debited from the
Merchant’s business checking account along with the
$400.00 in filing fees. The Acquirer then closes this
phase of the dispute as “Unsuccessful” |
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