A guide to chargebacks - Part III of III
Posted on Tuesday, September 25, 2007 by Bryan Johnson
III. Second Chargeback and Second Reversal Phase (MasterCard only): Once a Reversal (and the subsequent debit) is received back at the Issuing Bank, they will then forward the "Merchant's Letter" back to their Cardholder for a response. If the Cardholder wishes to pursue the dispute further, they then send in a "Rebuttal Letter" back to the Issuing Bank and if the Issuing Bank feels that their response is valid, will submit a Second Chargeback.
A Second Chargeback functions just like a First Chargeback, except a Chargeback fee is not assessed and the disputed amounted is immediately debited out of the Merchant's business checking account. The Merchant is sent another letter explaining what, if any, documentation is required to pursue this dispute further.
This "Second Chargeback" phase of the dispute is then considered "Resolved to the Merchant" and will remain closed until the Merchant responds back to the letter sent to them. If the Merchant does indeed respond to the letter sent to them a "Second Reversal" phase of the dispute is opened. An Acquirer Chargeback Analyst will then review the letter and one of two scenarios will occur:
1. If the Chargeback Analyst deems the Merchant's response as invalid, they will close out this phase as "Request Denied" and will mail a letter to the Merchant explaining why the Chargeback cannot be pursued further at that time. 2. If the Chargeback Analyst deems the Merchant's response as valid, they will submit a "Pre-Arbitration" letter directly to the Issuing back advising that the Acquirer believes the Merchant's claim is valid and that Acquirer will request MasterCard to make an Arbitration ruling on the dispute if the Issuer disagrees with the Merchant's claim.
a. If the Issuing Bank agrees with the Merchant's claim, they will simply forward the funds back to the Acquirer and the Acquirer will then credit the Merchant's business checking account accordingly. The dispute at this point is considered "Successful" and cannot be re-opened. b. If the Issuing Bank disagrees with the Merchant's claim, they will send a letter back to the Acquirer advising of such. The Acquirer will then send a form to the Merchant requesting that they sign the form which makes the Merchant liable for Arbitration filing fees. (When MasterCard makes an Arbitration ruling, it assesses a $400.00 filing fee to the loser of the dispute) If the Merchant does not agree to the fees, the Acquirer simply closes out the Second Reversal phase of the case as "Unsuccessful". If the Merchant does indeed agree to the fees and submits the signed form, the Acquirer then submits an Arbitration Request to MasterCard directly.
i. If MasterCard rules in the Merchant's favor, the Issuer is immediately debited and the Acquirer is credited for the amount in dispute and forwards the credit to the Merchant's business checking account. The Issuing Bank is also assessed the $400.00 in filing fees and the Acquirer closes this phase of the dispute as "Successful". ii. If MasterCard rules in the Merchant's favor, the Issuer is immediately debited and the Acquirer is credited for the amount in dispute and forwards the credit to the Merchant's business checking account. The Issuing Bank is also assessed the $400.00 in filing fees and the Acquirer closes this phase of the dispute as "Successful".
Comments
David Fish said on Wednesday, September 26, 2007:
Hi Bryan,
Nice series on the ins and outs of chargebacks.
Maybe I missed a blog post about it, but if I were a merchant reading this, I would have loved to hear about what happens with chargebacks in cases of fraud, not just customer disputes. I know there is a fine line between the two, and sometimes it's only a matter of perception to the merchant about what does and does not constitute fraud, but something more on fraud-related c/b's would really round out this topic.
Also, the same general description of MasterCard arbitration aplies to Visa. I think the difference that you seek to point out is that, since an initiative called Visa RED (Re-Engineering of Disputes) began in October 2003, issuers are only allowed to initiate a single dispute on Visa cases and acquirers are only allowed to re-present the chargeback once on Visa cases. Furthermore, it is now up to the issuer to initiate pre-arb cases, but this does give the merchant one more chance to rebut. Optionally, the issuer can skip pre-arb and submit the case to Visa for an arbitration ruling, which happens to be non-reversable. Most of the issuers in the world take this route, resulting in a situation where, in reality there still is a "second chargeback," but the right to rebut it has been taken away from the merchant. It's all in how you read between the lines.
All the best,
Dave
Bryan Johnson said on Tuesday, October 02, 2007:
@ David Fish - Hey Dave, good to hear from you and thank you for your comments. Nice callouts on the need to include a post about chargebacks related to fraud as well as Visa RED.
Eldar said on Friday, January 04, 2008:
Hello - I have a question for you...
We had a fraud case that was sent to pre-arbitration and ruled in our favor by Mastercard. The funds were transferred to our account and i thought the case was closed. Now, the issuing bank has started a new chargeback process with a new Case number. Can this be done? I thought, once it was ruled in our favor it would be case Closed. What is your opinion on this?
thanks.