4837 – First-Party Trust

DESCRIPTION

Why did I receive a First-Party Trust chargeback?

You received this chargeback because the cardholder disputed a transaction as unauthorised. Mastercard’s technology flagged the dispute as first-party trust (also known as friendly fraud) and rejected the chargeback as invalid. However, the cardholder refutes the evidence Mastercard used to justify its actions and continues to claim the transaction was unauthorised.

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CLASSIFICATION

How does Mastercard classify this dispute?

Mastercard nests several subcategories under general, overarching reason codes. This First-Party Trust subcategory is part of fraud-related reason code 4837 – no cardholder authorisation.

Mastercard has two transaction processing workflows: dual message and single message.

Reason code 4837 is for the dual message workflow. The single message equivalent is reason code 37. While the codes are different, the rules and processes are generally very similar for both dual message and single message disputes.

VALIDITY

What are the issuer’s filing requirements for First-Party Trust chargebacks?

Mastercard outlines a few stipulations for using this reason code.

• The issuer can only use this reason code if a previously-submitted fraud claim produced a 5002 response code (First-Party Trust Reject).
• Both the merchant and issuer are located in one of the following regions: USA, Canada, LATAM, or APAC (excluding mainland China, India, and Nepal).
• Before filing a chargeback with this reason code, the issuer must close the cardholder’s account and add a “capture card” notation to the account number.

Lastly, the issuer must provide at least one of the following forms of supporting documentation.

• A First-Party Trust Cardholder Exemption Affidavit signed by the cardholder and notarized by a notary public.
• An issuer attestation signed by the issuer’s chargeback compliance officer that includes proof the issuer shared the Identity Check Insights or Ethoca Consumer Clarity evidence with the cardholder and an explanation of how the cardholder continues to claim the transaction was unauthorised.
• A copy of the police report regarding the stolen card or device used to complete the transaction.
• A copy of the insurance claim for the lost mobile phone that was used to complete the transaction.

ISSUER TIME LIMIT

How long can the issuer wait to file a First-Party Trust chargeback?

A First-Party Trust chargeback must be filed within 120 days of the transaction processing date.

SECOND PRESENTMENT

Can I fight a First-Party Trust chargeback?

Yes. You can respond to a First-Party Trust chargeback — a process called representment or second presentment — in the following situations.

• A refund was previously issued.
• The chargeback was invalid.

There are a couple of reasons why a First-Party Trust chargeback might be invalid.

• The issuer has filed too many (36 or more) fraud-related chargebacks for this cardholder.
• The issuer approved a transaction after filing two or more fraud-related chargebacks for the same primary account number (PAN) and expiration date.
• The issuer didn’t report the criminal activity to Mastercard’s Fraud and Loss Database.
• The chargeback does not meet Mastercard’s filing requirements.
• The chargeback was processed after the time limit.
• Multiple chargebacks were filed for a single transaction.
• The cardholder’s supporting documentation was not received.
• The cardholder’s supporting documentation was illegible, incomplete, or for a different chargeback.
• The chargeback’s message text was invalid.

PROOF

What compelling evidence or supporting documents are needed for a First-Party Trust chargeback?

Occasionally, issuers will inaccurately file First-Party Trust chargebacks. If this happens and the chargeback can be challenged, your acquirer’s technology may catch the error and automatically respond on your behalf.

If your acquirer doesn’t automatically respond and you receive a chargeback notice, you can challenge the chargeback yourself. Here’s how.

Create a rebuttal letter and explain why the chargeback should be reversed. Include information that supports your case and is relevant to the reason for fighting the chargeback. If you want to be extra helpful, you could also provide the acquirer with Mastercard’s required message code.

• If you are disputing a chargeback because the issuer exceeded the chargeback count threshold, explain how many chargebacks you received (must be 36 or more) with the following reason codes: 4837, 4870, or 4871. The message code is 2713 (invalid chargeback).

• If you are disputing a chargeback because the issuer approved a transaction after filing two or more fraud-related chargebacks (reason codes 4837, 4870, or 4871) on the same PAN, provide the reason code and processing date for the previous chargebacks and the authorisation date for the current dispute. The message code is 2713 (invalid chargeback).

• If you are disputing a chargeback because the issuer didn’t report the transaction to the Fraud and Loss Database within three days of the chargeback, provide documentation to support your claim. For example, the daily acquirer loss data file, the monthly acquirer loss data file, or the acquirer reported fraud dashboard in Mastercard Connect. The message code is 2713 (invalid chargeback).

• If you are disputing a chargeback because the issuer didn’t follow Mastercard’s rules, use your rebuttal letter to explain why the chargeback was invalid. The message code is 2713 (invalid chargeback).

• If you are disputing a chargeback because it was filed after the time limit, share the transaction processing date and the chargeback processing date. The message code is 2702 (past chargeback time limit).

• If you are disputing a chargeback because the issuer had previously filed a chargeback for the same transaction, provide the processing date and the reference number for the first chargeback. The message code is 2701 (duplicate chargeback).

• If you are disputing a chargeback because the cardholder didn’t provide supporting documents within eight days of the chargeback, you can simply reply with the message code: 2002 (non-receipt of required documentation to support chargeback).

• If you are disputing a chargeback because the cardholder’s supporting documents are illegible or incomplete, you can simply reply with the relevant message code: 2709 (documentation received was illegible) or 2710 (scanning error – unrelated documents or partial scan).

• If you are disputing a chargeback because the required message text wasn’t included in the notification, you can simply reply with the relevant message code: 2704 (invalid message text).

• If you are disputing a chargeback because a refund has already been issued to the cardholder’s Mastercard account, provide the date and acquirer reference data (ARD) for the refund. The message code is 2011 (Credit Previously Issued).

ACQUIRER TIME LIMIT

How quickly do I need to file a chargeback response?

Response timelines vary by subcategory and region. Generally — in most regions and for most subcategories — responses must be submitted to the issuer within 45 days of the chargeback processing date.

There are a few timeline exceptions. The following countries have alternate time limits in certain situations — either 10, 20, or 30 days instead of 45.

• Costa Rica
• Kazakhstan
• Nigeria
• Poland
• Tanzania

NOTE: This time limit is for the acquirer — not you, the merchant. Merchant time limits are usually much shorter. Review your chargeback notice or check with your acquirer to find out how long you have to respond.

ADVANCING THE CASE

Are pre-arbitration and arbitration an option for First-Party Trust chargebacks?

Yes, pre-arbitration and arbitration are an option for First-Party Trust chargebacks.

An issuer can file pre-arbitration if the original chargeback was valid and at least one of the following is true:

• The addendum transaction is not the cardholder’s responsibility.
• A refund was not previously issued.
• The refund mentioned in the second presentment applied to a different transaction.
• The refund was for a partial amount and you failed to provide a remedy for the remainder of the amount.
• Your second presentment didn’t resolve the dispute.
• The issuer claims the supporting documents weren’t legible or weren’t submitted within the time frame.

If the issuer escalates the case to pre-arbitration, you — the merchant — have the chance to respond. You can either accept or reject liability. If you reject the pre-arbitration case, the issuer will likely proceed to arbitration. If that happens, you could be responsible for paying expensive filing fees.

Check our Mastercard pre-arbitration and arbitration guide to learn more.

PREVENT

How can I avoid chargebacks like this in the future?

The name First-Party Trust would make it seem like this chargeback is the result of friendly fraud. And to prevent it, you’d need to prevent the friendly fraud from happening. And, in part, that’s true.

However, if you receive this chargeback, it means the cardholder is adamantly refuting Mastercard’s claim that the transaction was authorised. So build a prevent strategy that addresses both potential causes — criminal fraud and friendly fraud.

Here are some suggestions.

• Consider using all the identity verification tools available to you — including Mastercard SecureCode, CVC2, and Address Verification Service (AVS).
• Use a third-party fraud detection solution that can help verify the cardholder’s identity, detect potential criminal activity, and reduce the risk of accepting unauthorised transactions.
• Use a billing descriptor that is easily recognized by the cardholder so legitimate purchases aren’t confused for fraud.
• Always submit an authorisation request, no matter the transaction amount.
• Follow up after a purchase has been made to gauge satisfaction and resolve any issues.
• Establish user-friendly policies to prevent friendly fraud masquerading as actual fraud.
• Clearly and concisely communicate your terms and conditions for recurring transactions.
• Ask cardholders to review and agree to the terms before completing the transaction.
• Explain when and how much you’ll charge the cardholder’s card for recurring and installment billing payment plans.
• Remind customers of upcoming charges, especially if a significant amount of time passes between each recurring or installment billing cycle.
• Make sure qualified cancellation and non-renewal requests are fulfilled promptly and accurately.
• Send a notification after you’ve cancelled a recurring payment plan.
• Check the customer’s ID for buy-online-pickup-in-store purchases.
• Consider using a blacklist or negative list to block customers who have previously filed a fraud-related chargeback.

Want more information about preventing fraud-related chargebacks? Visit our detailed guide on preventing chargebacks.

NOTE

Mastercard chargeback rules are complex. The guide is over 1,500 pages long — compared to 67 pages for Visa — and contains detailed rules for both issuers and acquirers.

In an attempt to simplify the complex, we are only sharing information that is most relevant to merchants. If you are an acquirer and in need of more details, reach out to our team. We’d be happy to walk through the specifics with you.