Note: We are not attorneys or accountants. The following information is purely meant to be informative, subject to change, and we invite you to contact us with any questions. Thank you.
Before we talk about the process, let’s make sure you understand the definition of a chargeback.
A chargeback, removing all emotion, is nothing more than a dispute by a cardholder about the service provided or product purchased.
How long can a cardholder take to submit a chargeback?
A cardholder has between 45 to 180 days to submit a chargeback claim. There are instances when a chargeback can extend beyond 180 days (eg: a subscription service or payment plan for a product, or an extenuating circumstance based on a natural disaster or family medical emergency).
Pre-Chargeback – Retrieval Request
When you receive a Retrieval Request, this is NOT a chargeback, rather a cardholder who wants additional information about a transaction that was processed. Not all retrieval requests will result in a chargeback.
What are the steps in a Chargeback?
- Pre-Arbitration (MasterCard, Discover, American Express)
- Second Chargeback (Visa)
The cardholder is not satisfied with product or service rendered. The cardholder will call their bank and issue a chargeback request. You will receive a letter from the processing company that specific transaction(s) is under dispute, along with the reasons for the dispute. The letter is usually 1-3 pages long and you are required to respond to the letter within a specified period of time, usually 10 business days.
When the chargeback is filed, the bank will send a debit notice to remove the money from your bank account until the final decision is rendered. The debit will show up as an adjustment (debit) on your monthly statement.
Once all documentation is submitted (see tips for defending chargebacks), the issuing bank has between 30-45 days to review the case and make a decision on the chargeback. Keep in mind, the bank that issued the card will be making the decision on the chargeback. FPN has no vote or influence on the final decision the bank makes. The case is decided based on the merits of the information you provide.
In the event you win the chargeback, the funds will be credited back to your account and show up as an adjustment (credit) to your monthly statement.
In the event the bank rules in the favor of the cardholder, the temporary credit will be issued to the cardholder and you will be debited. You then have the right to push for arbitration.
Second Chargeback (Visa) or Pre-Arbitration (MasterCard, Discover, American Express)
Visa will do a second chargeback if the cardholder wants to challenge the first ruling. In the event a cardholder or you lose the chargeback decision, you both have the right to represent additional information for further consideration.
When a Pre-Arbitration notice is issued, you have a decision to make as this challenge will introduce new fees associated with the submission of documentation. In this round a few things can happen:
- The cardholder may change the reason for the submission.
- You may have additional information not formerly disclosed, or the information submitted was not sufficient to win the case.
- The cardholder may have additional information that was not provided the first time.
If the bank decides there was sufficient evidence provided by the merchant, you will receive your money back and the case will be closed.
If the bank decides that there was insufficient information, the bank will finalize the credit and the case will be closed and arbitration fees will be assessed.
Failure to submit a notice that you wish to submit additional information may result in additional fees being assessed. Please respond to the Pre-Arbitration document.
In the case of Pre-Arbitration or Second Chargeback, either party that loses may push for the final step: Arbitration.
When either of the parties in dispute are still at odds with the decision following the Chargeback, Second Chargeback, or Pre-Arbitration process and elect to proceed to the final step of Arbitration, the issuing and acquiring banks will turn to the card brand arbiter to make a final decision based on all facts presented.
When Arbitration is required to mediate and decide on the final disposition of funds, the expense can become very costly. A minimum of $420 plus filing fees will be assessed to the merchant in the event of a loss. Fees and costs can exceed $900 in some cases.
It is incredibly rare that a merchant will win an arbitration case. If compelling evidence was not produced in the first two rounds, or information on the transaction does not meet the full authorization requirements for security (eg: full match for AVS, ZIP, CVV2 if hand-keyed or recurring payment), it will be very difficult to win an arbitration case.
If you are going to challenge beyond the first two rounds, prepare for the economic possibility of not just losing the case, but losing the money collected for the service/goods provided plus the overall cost through he process.
Gain The Advantage
We know keeping up with the ever-changing nuances of payments can be a lot to keep up with. This is why FPN developed The Advantage Program, a trio of solutions designed to help protect your business against chargebacks and data breaches.* Options may include:
- Get reimbursed for chargebacks up to $1,000*
- Should you suffer a data breach, you’ll be insured for up to $100,000*
Stop wasting time chasing down funds so you can focus on new customers. Contact FPN today to learn how The Advantage Program can give you peace of mind and protect your business.
* The FPN Advantage program is primarily for what card brands consider ‘card present’ transactions. Protection terms subject to change. Please contact us should you have any questions.