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Chargeback Rules are Changing – Here’s Why That’s Great News
Over the past month or so you may have seen a new message on your credit card processing statements. Changes are coming to the way Visa handles its chargeback and retrieval requests process, and we’re excited to share that it will significantly streamline the process for our customers. In our experience, Visa sets the trends in the credit card processing industry, so other card brands are sure to follow. In short, you’ll have fewer worries about difficult customers as the list of acceptable chargeback reasons has shrunk dramatically. Plus, you’ll get answers much more quickly – Visa only has 30 days to get back to you instead of the previous 90. The only downside is that you’ll also only have 30 days to respond to chargebacks. Let’s go through the new program, called Visa Claims Resolution (VCR), in a bit more detail.
What is VCR?
No business owner likes to deal with chargebacks, in part because the process has historically been complicated and cumbersome. The burden is on the business to prove that the transaction was handled properly, and while it’s being sorted out the money is still taken from your account. Visa has been listening and has come up with some answers. Starting in April 2018, a new chargeback process will be implemented. The new system aims to reduce the number of chargebacks business owners have to deal with, automate the process so disputes are resolved more quickly, and streamline the way chargebacks are coded to make everything simpler.
How Will VCR Help Me?
VCR puts several new policies in place that are designed to make your life as a business owner much easier. First, Visa will actually block chargebacks from being initiated if transaction data doesn’t support the claim. Visa calculates that these invalid chargebacks represent about 14% of total claims. The system will also automatically locate and require issuing banks to verify related transactions to make sure the chargeback is an isolated incident and that it hasn’t been already resolved. In the past, if you had refunded a merchant already a chargeback could still be initiated because the dispute scope was limited to a single transaction. Banks will be required to verify that the claim is actually valid before filing the dispute.
You will also now receive information about the chargeback before the dispute is started. This means you’ll get a little bit of a heads up that the money will be pulled from your account, reducing the frustration merchants often feel when they wake up one day to a big withdrawal. There will also be significant changes introduced in terms of your rights during the chargeback process. Previously, a chargeback could be initiated for spurious reasons, and it wasn’t until the merchant had already gone through all the hassle of responding before the issuing bank reviewed the information and determined the chargeback had no basis being brought in the first place. Visa estimates that this proactive analysis will eliminate approximately 15% of all chargebacks. Furthermore, this means you’ll be able to proactively handle disputes before the chargeback process begins. Visa is rolling out a new suite of products and services called Merchant Purchase Inquiry that will help you manage customer disputes before they escalate to the chargeback level.
There will now be just four categories for chargebacks, with similar but distinct processes designed to resolve each issue as quickly as possible. The first is Fraud – fairly self-explanatory. The second is Authorization, which applies to transactions where the authorization was declined (or none was ever given). Third is Processing Errors, which refers to cases involving everything from an incorrect amount entered to a duplicate transaction. Basically, if there was an issue with the way the transaction was processed the chargeback will fall into this category. The last category is Customer Disputes, which covers disagreements over whether or not merchandise was ever delivered, counterfeit goods, misrepresentation of the products and services sold, etc. You will always be told the dispute category and the specific reason for the chargeback.
Some chargebacks will now be handled by an automated system to speed up their processing. Chargebacks initiated in the Fraud or Authorization categories will be automatically issued a decision, then merchants will have 30 days to respond. Note, however, that this response is technically considered a pre-arbitration proceeding since the decision has already been made. Think of it more like filing an appeal in court – the case has already been decided, but you are able to disagree. New rules require that the issuing bank must review and respond to any responses you make so you can rest assured your side will be heard. Customer Disputes and Processing Errors chargebacks will not be subjected to this accelerated process.
Further rule changes will also benefit merchants. First, a chargeback limit will be imposed that restricts chargebacks to 35 every 120 days for a given account number. This will reduce rampant abuse of the system. Furthermore, if an account is flagged for fraud and the cardholder proceeds to file numerous chargebacks over the subsequent days or weeks, only the first chargeback will be considered valid. This puts pressure on the issuing bank to make sure that they are not negligently allowing a stolen card to continue to be used, creating unwarranted hassles for unsuspecting merchants. You’ll also be notified of fraud reports so you can proactively handle issues before they arise as well.
Sounds Great! When Is This Happening, Again?
Great news – VCR has been in the testing phase for nearly a year now and is almost ready for launch. Already active in some overseas markets, VCR will roll out for everyone on April 15, 2018. No action is required on your part – the new rules and benefits will automatically take effect on that date.
If you have questions or want to learn more, please don’t hesitate to call us at 1-855-360-0360 or drop us a line on our website. We’d love to help you understand more about how VCR will help your business.
PS – Here’s how to protect your business from chargebacks in the first place.
PPS – When chargebacks strike, here’s how to fight back.