Credit Card Chargeback Merchant Rights: Everything You Need to Know to Protect Your Business

Credit Card Chargeback Merchant Rights: Everything You Need to Know to Protect Your Business

Credit card chargeback fees can feel like they’re coming out of nowhere. Most retailers have a system in place to prevent chargebacks. But training your associates to prevent chargebacks isn’t enough––billing errors outside of your control can also result in significant fines.

Yes, “merchant error” still accounts for 10 to 15% of overall chargeback disputes. But fraudulent activity is still the leading cause of chargebacks. In fact, “Friendly fraud” alone comprises 60-76% of overall disputes. 

At this point, you’re probably wondering if there are any credit card chargeback merchant rights that can protect your small business. The good news is that there are a few different ways to shield your small business from unnecessary credit card chargebacks. 

Let’s take a look.

Credit Card Chargebacks_Friendly Fraud_Infographic

What Is a Chargeback?

Chargebacks were created to protect customers from getting charged for purchases they didn’t make or approve. While this is a wonderful system for consumer protection, it doesn’t do much to protect your business. Many merchants are under the impression that they have no alternative to paying when customer disputes arise.

Fortunately, in cases of cardholder error or chargeback fraud, you can protect your business. By knowing your credit card chargeback merchant rights, you can work with card networks to combat fraud. 

Visa and Mastercard operate with stringent guidelines and have provisions to protect small business owners from all types of fraud. Knowing how to interface with card issuers will protect your business from losses incurred during the chargeback process.

Common Causes of Credit Card Chargebacks

Credit card chargebacks occur whenever a transaction is disputed. Disputes come from your customers’ card network or your customer­­­­––the cardholder––themselves. A few different factors can result in chargebacks when processing card transactions with your merchant account.

Before we go into these, it’s important to note that every chargeback incurred by your business comes with a Chargeback Reason Code. Credit and debit card networks provide this 2 to 4-digit code that highlights the reason for the chargeback. This can be found on your credit card statement.

Now, back to chargeback causes. Each credit card issuer has its own set of merchant rights and standards. But there are overarching regulations that apply to all merchant transactions. For the purpose of this article, we’ll break these up into two types of chargebacks—fraudulent chargebacks and non-fraudulent chargebacks.

Non-fraudulent chargebacks

These happen in cases of merchant error and comprise 10 to 15% of total chargebacks in the retail industry. Your customer’s (issuing) bank can reject a transaction for multiple legitimate reasons. These include:

  • Late delivery (Customers can appeal transactions when they’re shipped items after the promised delivery date)
  • Products not received within a reasonable timeframe
  • Mis-swipes on card-present transactions
  • Incorrectly entered information on card-not-present transactions
  • Incorrectly processed transaction amount
  • Double charges (The customer was charged twice for the same item or transaction)
  • A poor quality product

Fraudulent chargebacks

Unfortunately, customer and retailer errors aren’t the only reason you’ll see chargebacks on original transactions. There is one common form of swindling that fraudsters use to separate your small business from its hard-earned revenue.

Friendly fraud

You’re probably asking, “How can fraud be ‘friendly?” Friendly fraud (aka chargeback fraud) doesn’t mean that you high-five the person who defrauds your business. It means that a customer purchased something from your eCommerce store just to keep the product and request a refund

In most cases, the customer does this with the intention of fraudulently requesting a refund. It’s called “friendly” because everything but the customers’ intention is above board. 

But this isn’t a minor issue. Friendly fraud has already increased by 21% between 2018 and 2021. What’s worse, policy abuse of this sort costs retailers $89 billion a year. Fraud rates are only increasing with time as more retailers gravitate to eCommerce-heavy operations.

But you know what they say—the best defense is a good offense. So, protect your business from fraudsters by studying chargeback merchant rights and disputing shady chargeback requests.

Credit Card Chargebacks_Friendly Fraud Stats_Infographic

Essential Credit Card Chargeback Merchant Rights

A clearly stated refund policy and return policy can help protect your business from friendly fraud. You can use the reason codes on the back of your statement to identify the formal reason for each chargeback. Keep in mind, however, that the codes differ depending on the credit card issuer.  

The Fair Credit Billing Act was passed in 1947 to protect customers from unfair charges. But, as you’ve seen, sometimes it’s the merchant that needs protection from chargeback fraud. 

Both card networks and banks have implemented standards to protect your chargeback merchant rights. Card issuers have implemented a 15-day grace period for chargebacks on returned items. 

Merchant protection is the idea behind this time limit. This was implemented so customers can’t issue a chargeback request before you have a chance to issue their refund. You also can’t incur chargebacks on cash-back transactions.

The appeal process for chargebacks can get a little convoluted on the merchant side. First and foremost, you’ll want to look up the chargeback reason codes on your bank statement. This will allow you to weed out any chargebacks resulting from any kind of fraud.

To dispute a chargeback, you’ll need to create a case for representment. You’ll need to represent compelling evidence for the chargeback to be declined. By keeping meticulous records, you’ll be ready to submit any information that the card processors request. This includes customer information, sales records, existing communications, your return policy, and the product description from your store or website.

The Bottom Line

Payment Depot Highest Rated Processor_Banner

Fraud prevention is an active responsibility for modern business owners. Monitoring and contesting chargebacks on your own can be exhausting. So, it’s important to partner with a payment service provider that has a knowledgeable and easily accessible customer service team on call.

Payment Depot’s award-winning CX team has an A+ rating from the Better Business Bureau. In fact, we have the highest-rated merchant services in the retail industry. See why for yourself by contacting one of our award-winning representatives today!

FAQs

Knowing your rights can help prevent arbitration in cases of fraudulent chargebacks. You have the right to representment and arbitration in cases of suspicious chargebacks. Before we close, let’s take a look at a few final questions about credit card chargeback merchant rights.

Should merchants fight chargebacks?

Yes! Fighting illegitimate chargebacks can help protect your business from fraud, and help you maintain ROI.

What time limits are applicable to chargebacks?

Customers can file chargebacks within 60 to 120 days of their original purchase. From there, you have 30 to 45 days to respond. These time windows may vary depending on your customer’s card network, your acquiring bank, and the chargeback reason code.

How do chargebacks differ from refunds?

Chargebacks occur when customers do not request—or are denied—a refund for a particular purchase. While refunds are between you and your customer, chargebacks are between your customer and their card issuer. To protect merchants, most companies require customers to contact you for a refund before issuing a chargeback request.

What is a chargeback fee?

A chargeback fee is a fee charged by your bank (the acquirer) to penalize you for processing a customer’s chargeback. This $25 to $50 fee aims to compensate your bank for the time involved in processing a chargeback.

What is a chargeback ratio?

Banks monitor your company’s chargeback ratio to prevent you from processing an unnecessary number of chargebacks. Your ratio is the number of chargebacks you received during the month divided by your total transactions for that month. If your chargeback ratio is above 0.9, you may receive a notification from your bank about fees and additional consequences.

Want to save 40% on payment processing? Let's Talk!