Chargeback Rights for Merchants: What You Can & Can’t Do

You just got a chargeback. What happens now? Fortunately, you are entitled to certain chargeback rights. And it’s important to understand and defend those rights so you can respond appropriately.

Chargebacks were originally invented as a consumer protection mechanism.

Several decades ago, the U.S. federal government passed legislation to protect cardholders in cases of fraud — if an unauthorized transaction was made, the customer wouldn’t be financially responsible. The card brands (Visa, Mastercard, etc.) built upon the legislation and introduced chargebacks.

As a result, chargeback rights are often oriented towards protecting cardholders more than merchants.

However, there are several valuable chargeback rights that can help you navigate the chargeback process.

Card brands regulate nearly every component of payment processing — including disputes and chargebacks. The brands publish their rules in detailed guides, and you have the right to access those documents so you know what’s expected of you.

Mastercard and Visa share their documents publicly. Discover and American Express only publish their guides in their online merchant portals, so you need to log into your account to access the rules.

You can contact your merchant account provider if you need help finding a copy of the rules, have questions, or want to be notified of changes.

Card brands update their rules regularly. New chargeback guides are usually published every year in April and October. Check updated regulations so that you know your responsibilities.

Every chargeback you receive can have a negative impact on your business — such as revenue loss, damaged reputation, and poor customer retention. You have a right to know why all those bad things are happening!

When a cardholder disputes a charge, the issuing bank assigns a reason code to the chargeback. Reason codes are an explanation for why the transaction was disputed.

For example:

• Unauthorized transaction
• Goods or services were not received
• A refund was not issued
• A subscription wasn’t canceled

Each card brand has a unique list of reason codes. However, the classifications and descriptions are fairly similar.

Understanding reason codes can help you determine the underlying reason for disputes and solve issues at their source.

An effective chargeback prevention strategy includes identifying potential threats and avoiding future risks. That means you might need to avoid doing business with certain people indefinitely.

Some consumers pose a high risk to your business — such as repeatedly filing chargebacks. And some issuing banks will initiate invalid disputes frequently.

In these situations, you can blacklist customers or banks that are prone to chargebacks — and that’s a chargeback right you can exercise whenever necessary.

An invalid chargeback is an unnecessary or non-compliant payment dispute, and there are two types of invalid chargebacks.

1. The chargeback process was used incorrectly.

Sometimes, cardholders make fake claims or provide inaccurate reasons for disputes. This is called friendly fraud. Friendly fraud can either be an intentional attempt to get something for free or an innocent misunderstanding.

For example:

• Jane disputed a purchase because she didn’t receive a package that was supposedly delivered. Later, a neighbor brought over the package to Jane — the delivery driver left it at the wrong house.
• Joe forgot to cancel his monthly subscription. Frustrated when his card was charged, Joe disputed the purchase in his bank’s app, falsely claiming the business didn’t tell him about the recurring transaction.
• Molly didn’t recognize a transaction on her bank statement. Jumping to conclusions, she assumed it was fraud and disputed the transaction.

2. The dispute didn’t follow card brand rules.

Sometimes the issuer files a dispute but overlooks or misunderstands one or more of the card brand’s regulations, resulting in an invalid dispute.

For example:

• The issuer files a chargeback after the time limit.
• The issuer files a dispute for an amount that is greater than the original transaction amount.
• The issuer uses a reason code that isn’t applicable to the transaction.
• The issuer files a chargeback after you’ve processed a refund.

No matter what makes the chargeback invalid, if you can make a credible argument to support your case with documentation, you have the right to challenge the chargeback.

Want help fighting invalid chargebacks? AltoShield can help. Reach out to our team today for more information.

When it comes to chargebacks, you have a lot of rights — and responsibilities. And those responsibilities can be confusing, frustrating, and time-consuming.

Fortunately, you don’t have to manage all those responsibilities by yourself. You have the right to get help from a chargeback expert.

Assistance can be as simple as reaching out to your processor or acquirer when you have questions — or as comprehensive as outsourcing tasks to a service provider.

If you’re not sure where to begin or how to ask for help, contact AltoPay. We’ll review your current situation and offer suggestions about the best strategy for your business.

When it comes to chargeback management, you — the merchant — have rights. Let AltoPay help defend those rights, ensuring your business enjoys stable, reliable payment processing.

Reach out to AltoPay today to get started.