The Chargeback Process

• Introduction to the Chargeback Process

• Chargeback Details

  • First Chargeback Phase

  • First Reversal Phase

  • Second Chargeback and Second

  •  Reversal Phase (MasterCard only)

  • Issuing Bank Pre-Arbitration Phase (Visa only)

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:

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:

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:

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:

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:

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: