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.
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.
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.
Cardholder disputes transaction by notifying card
Card issuer reviews eligibility of dispute and if ap-
propriate, returns transaction to merchant’s acquirer.
Card association screens dispute for eligibility and
compliance with chargeback rules.