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Conquering the chargeback chimera

By David H. Press

Last month I wrote about the importance of merchant education, emphasizing that proper merchant training can reduce chargebacks and enable you, as ISOs and merchant level salespeople, to make more money. Remember that a card issuer must meet all requirements for the MasterCard Worldwide and Visa U.S.A. chargeback reason code it is using.

Otherwise, the chargeback can be re-presented by the merchant or acquirer, shifting the burden of loss back to the card-issuing bank or cardholder. You may find the examples below helpful in further understanding the chargeback process and certain chargeback reason codes.

MasterCard Reason Code 4860

A card issuer initiated a chargeback for MasterCard Reason Code 4860 (credit not processed) after receiving a letter from a cardholder who was dissatisfied because a merchant issued her an in-store credit for returned merchandise.

The cardholder stated she had no use for the in-store credit and was not advised of the merchant's in-store credit policy at the time of purchase. She wanted a credit on her card account.

The card issuer processed the chargeback because 1) the in-store credit confirmed the merchant's acceptance of the returned goods, and 2) the credit was not issued in accordance with MasterCard's disclosure requirements.

The requirements allow merchants to impose specific transaction terms by printing them on an invoice or sales draft near the cardholder signature line before presenting it to the cardholder for signing.

Transaction limitations may also be disclosed by other means, such as signage or literature, provided they are sufficiently prominent and clear to cardholders. Examples of allowable wording for transaction limitations are "exchange only," "in-store credit only," and "original packaging required for returns."

In this case, the merchant would lose because he did not give the cardholder proper notice of his in-store credit policy. Reason Code 4860 is applicable only if the merchant accepts returned merchandise or service cancellation and issues an in-store credit (or partial credit) without proper disclosure, as specified under the rules. If you help to properly set up your merchants, this chargeback situation can be prevented.

Visa Reason Code 85

The card issuer initiated a chargeback for Visa Reason Code 85 (credit not processed). It attached a copy of the cardholder's statement with a circle drawn around the merchant's $59.95 transaction and "canceled" written next to it.

In this case, the merchant can have his ISO re-present this chargeback because the card issuer failed to indicate the reason for cancellation. Reason Code 85 requires the card issuer to provide: 1) the date the merchandise was returned or the services were canceled; 2) proof that the cardholder made an attempt to resolve the dispute; and 3) a reason for the cancellation or return.

Many credit-not-processed chargebacks can be re-presented due to failures to meet these three requirements. I usually find merchants are not even re-presenting chargebacks in situations in which they have already issued credits/returns to cardholders.

Merchants should check every incoming chargeback to see if a credit has already been issued. It's easy to re-present a chargeback for credit issued.

Visa Reason Code 53

The card issuer initiated a chargeback for Visa Reason Code 53 (not as described or defective merchandise) in which the cardholder attempted to return merchandise purchased at an auction.

At the time of the transaction, the merchandise was represented as a genuine, signed memorabile, but it was actually only a laser copy.

The ISO's chargeback department re-presented the chargeback with a merchant letter stating the merchandise was clearly described, the cardholder had the winning bid and the cardholder agreed to the merchant's terms and conditions.

The merchant also provided a signed agreement that stated he would not accept the return of disputed merchandise and all sales were final.

The merchant won this chargeback for three reasons: 1) The language in his paperwork reduced chargeback exposure; 2) the cardholder failed to prove the merchandise sold was not as described; and 3) the cardholder failed to provide documentation from the merchant that guaranteed the merchandise's authenticity.

These examples show that by paying close attention, a merchant and his ISO's chargeback department can lessen the cost of chargebacks.

Many issuing banks have large chargeback centers that send improper chargebacks to the same merchants routinely. They will continue to do so for as long as they get away with it. When they know a merchant re-presents invalid chargebacks, they are much more careful about sending chargebacks to that merchant.

Visit the card Associations' public Web sites for more chargeback resources: and or visit

Article published in issue number 061001

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