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A Thing

To part the chargeback waters, know thy reason codes

By David H. Press

I have often written about the importance of merchant education and training. When it comes to chargebacks, keeping your merchants up to date and on their toes is critical. These efforts may ensure that some of your most profitable accounts will keep processing with you.

Merchants typically get chargebacks for the usual two or three reason codes, and often for just one reason: an inability to issue timely refunds. For example, the lion's share of chargebacks for MO/TO merchants stem from failure to promptly issue refunds for returned merchandise, fraudulent transactions, defective goods, etc.

The refund issue can be a warning sign that a merchant is having cash-flow problems or experiencing a customer service meltdown.

Cracking the codes

A card issuer must meet all requirements for the reason code it is using for a given chargeback. Otherwise, the chargeback is invalid and can be re-presented by the merchant and acquirer, shifting the burden of loss back to the issuing bank and cardholder.

When ISOs send my team and me out to work with merchants, I often find that a substantial number of chargebacks could be re-presented if merchants better understood the rules and bothered to re-present improper and invalid chargebacks.

It always amazes me how often MO/TO merchants get chargebacks for transactions that have actually been refunded to cardholders. Yet, the merchants involved haven't bothered to re-present the chargebacks to the issuing bank.

You may find the following examples of MasterCard Worldwide and Visa U.S.A. reason codes helpful in understanding the chargeback process.

MasterCard Reason Code 4853

An issuer initiated a chargeback for MasterCard Reason Code 4853 (defective/not as described) after receiving a letter from a cardholder stating that he engaged in the transaction, returned the merchandise and was refused a credit.

However, after carefully reviewing the cardholder's letter, the merchant and acquirer noticed the chargeback was invalid because the cardholder didn't mention "a particular problem or defect" having to do with the merchandise. The letter only conveyed the decision to return it.

In cases like this, the merchant and acquirer can re-present the chargeback, shifting the burden of loss back to the issuer and cardholder.

More on MasterCard Reason 4853

In another example of MasterCard Reason Code 4853 (defective/not as described), an issuer initiated a chargeback based on a cardholder letter claiming the goods from a face-to-face transaction with a jeweler were not as described.

For supporting documentation, the issuer provided a cardholder letter stating the jeweler indicated that a ring purchased by the cardholder was solid 14-karat gold, but the ring was not worth the amount paid to the jeweler.

The cardholder also provided 1) the requisite appraisal from another jeweler verifying that the ring was gold plated, not solid 14-karat gold, and 2) a statement that the cardholder attempted to return the ring, but the jeweler refused to accept its return. The issuer did not, however, provide any documentation given to the cardholder by the jeweler stating the ring was sold as a solid 14-karat gold ring.

In this situation, the jeweler and acquirer can re-present the chargeback. They will prevail on the basis that the description on the sales ticket does not indicate the ring was presented as a solid 14-karat gold ring.

MasterCard Reason Code 4855

An issuer initiated a chargeback for MasterCard Reason Code 4855 (nonreceipt of merchandise) and supplied a letter from the cardholder involved. The letter stated the cardholder engaged in the transaction but never received the merchandise. And the cardholder contacted the merchant for a credit, but it was never issued.

To prove the cardholder received the merchandise, the acquirer provided a signed shipping receipt to the issuer. The issuer sent this signed receipt to the cardholder.

The cardholder examined the receipt and still refused to pay. The cardholder asserted he did not receive the merchandise, and the signature on the receipt was not his, nor did it belong to anyone he authorized to receive the merchandise.

If this dispute were to escalate into an arbitration case, MasterCard would rule in favor of the issuer because the cardholder still disputed the original sale's consummation and all further documentation that the acquirer supplied. This is the bad side of the chargeback process; it doesn't always result in the proper outcome.

The requirements for a re-presentment to a chargeback for nonreceipt of merchandise are very specific. The acquirer must provide proof that the cardholder or a person authorized by the cardholder received the merchandise.

Visa Reason Code 30

An issuer initiated a chargeback for Visa Reason Code 30 (services not provided or merchandise not received) based on a cardholder's claim that an ordered concert ticket was not received.

In response to the chargeback, the merchant provided proof of delivery showing the package was left at the cardholder's front door. The merchant also provided a delivery form, signed by the cardholder, authorizing the shipping company to leave the package at the door.

In this scenario, the merchant would prevail. It is unreasonable for the merchant to be responsible for the cardholder's decision to have the package left at the door. Note: There would be a different result if the merchant were unable to provide signed proof that the cardholder agreed to have the package left at the door without a signature.

Visa Reason Code 85

An issuer initiated a chargeback for Visa Reason Code 85 (credit not processed) based on the following scenario: A cardholder called a hotel to reserve a room for three nights and gave his credit card number to guarantee the room. The hotel informed him of its 24-hour cancellation policy and provided a confirmation number.

Three days before the reservation date, the cardholder called the hotel to cancel the reservation. The cancellation was accepted. But the cardholder was charged for a no-show on the arrival date. The cardholder then phoned the hotel, which explained it did not have record of the cancellation, so the charge was valid.

The hotel and acquirer re-presented the chargeback, claiming the hotel had no record of the cancellation and the issuer did not provide a cancellation number.

In this case, the hotel would prevail. Reason Code 85 requires a cancellation number be provided for a no-show transaction. If the cardholder was not given a cancellation code or if the cardholder lost the code, the issuer cannot pursue the chargeback.

These examples show how nit-picky the chargeback process can be. However, my experience in helping ISOs solve merchant chargeback problems has shown the process can be managed. Only a few chargeback scenarios apply to each merchant.

By having the proper processes in place, merchant chargebacks can be minimized. And when they do occur, they can often be re-presented, shifting the burden of loss back to the issuer.

David H. Press is Principal and President of Integrity Bankcard Consultants Inc. Call him at 630-637-4010, e-mail or visit

Article published in issue number 060901

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