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The Comm





Bankcard Chargebacks

Rules, Rights, Obligations, And Risks

By Clint Lucas,Managing Partner,Terrapin Financial Services, LLC (TFS)

y goal in this article is to clearly articulate to

our community banking partners and merchant

clients the rules, rights, obligations, and risks

associated with credit and debit card disputes.

Card disputes, affectionately known in the bank-

ing industry as chargebacks, can quickly result

in loss of money, trust, and goodwill. Recent

chargeback and fraud trends are troubling, and

community banks and their commercial clients

must change mindset concerning chargeback

risk. While very aware of the risk to banks of

debit card fraud and data breaches, the concen-

tration here will be on our joint clients, small

businesses, who accept credit/debit cards for payment of

goods and services. Please pass this information on to your

commercial clients, who desperately need it.

Participating Entities

A cardholder is an owner and authorized user of a credit/

debit card. Cardholders can be individuals or authorized

employees of a business with a commercial credit/debit

card program. A merchant is a business authorized to ac-

cept credit/debit cards as payment for goods or services.

An acquirer (TFS is an acquirer) provides credit/debit card

processing services to merchants. In TFS’ case, we do this in

partnership with our community banking partners. A card

issuer is a financial institution that provides credit/debit cards

to their clients (cardholders with accounts at that bank), to

purchase goods and services. Card issuers typically bill and

collect monthly from cardholders for all card activity. A card

association is primarily Visa and MasterCard, who contract

with card issuers to issue branded credit/debit cards, and who

work with acquirers to authorize and settle credit/debit trans-

actions. The associations also provide many types of card pro-

grams, promote their respective brands, and most importantly

establish the rules and regulations inherent to participating in

their programs. These regulations include the rules associated

with card disputes/chargebacks.

Cardholder Rights

One of the major benefits of buying goods and services with a

credit/debit card, from a consumer perspective, is the ability

to dispute any transaction. Most merchants do not under-

stand this, especially those who have never experienced a

chargeback. In fact, most merchants think sales completed via

credit/debit card are guaranteed, and much safer than a check.

Nothing could be further from reality.

Cardholders can dispute any purchase, but must initiate

disputes within a specific time frame, which varies slightly by

card issuer. The time frame is typically 60 to 180 days from

statement mailing date. Thus, a merchant who completed a

sale up to six months ago could still be liable for a chargeback.

Cardholders must submit disputes to their card issuer in writ-

ing, but most call toll-free and then complete a standard form

to begin the process. Over 20 “reason codes” are available

to consumers when initiating disputes, including service not

provided, merchandise not received, defective merchandise,

fraudulent transaction, no authorization, expired card, incor-

rect transaction amount, and credit not processed, among

others. In the past, cardholders would contact merchants and

work out problems without disputing credit/debit transac-

tions, usually with a resolution acceptable to both parties.

Now, many consumers dispute first and ask questions later, a

sign of the times.

Process Details

Step 1:

Cardholder disputes transaction by notifying card


Step 2:

Card issuer reviews eligibility of dispute and if ap-

propriate, returns transaction to merchant’s acquirer.

Step 3:

Card association screens dispute for eligibility and

compliance with chargeback rules.