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March 23, 2020 • Issue 20:03:02

Chargebacks: a costly, voracious threat

"Dispute management is a critical card function," said Brian
Riley, director of the credit advisory service at Mercator.
"The Consumer Financial Protection Bureau's recent focus
on unresolved dispute requires every issuer to take this
matter seriously."

But it won't be a cakewalk. "While the increase in disputes
volume is already a recognized problem in the payments
industry, understanding the greater complexities involved
and finding effective resolution tools and strategies to
manage the issue is proving challenging," said Dr. Lynne
Baldwin, president of BHMI, which provides software
supporting back-office processing of electronic payments.

The complexities are magnified by ever-changing card
brand rules around chargebacks, which can prove difficult
By Patti Murphy for merchants and issuers to keep up with, Baldwin noted.
hargebacks are a multibillion dollar threat to the "Visa and Mastercard are very aggressive in making
integrity of card payments. Mercator Advisory changes to the disputes process," Baldwin said. "They
Group estimates there are 25 million disputed are introducing [chargeback] rule changes about once a
C transactions each year, and that number will quarter." She added that issuers, merchants and acquirers
likely grow to 33 million by 2022. "have to adhere to the changes or they lose."
Lay of the land
While 25 million may look like a drop in the bucket of the
49.9 billion credit card payments made in the United States The card brand rules governing chargebacks date back to
last year, the problem can be more severe than the numbers the 1970s and were designed to encourage consumer adop-
suggest. For example, a recent action by the Consumer tion of fledgling card payment methods by assuring them
Financial Protection Bureau, which is responsible for that they wouldn't be left holding the bag for fraudulent
enforcing consumer protection laws, took action against transactions. As Mercator put it, "Irrefutability is essential
Providence, R.I.-based Citizens Bank N.A. for not properly in payments. Transactions must align with purchases made
managing and responding to credit card disputes and by authorized users."
billing errors.

A complaint filed in Rhode Island federal court in
January 2020 alleges, among other things, that the bank Contributed articles inside by:
automatically denied customer claims of unauthorized
use of their credit cards and of billing errors. The bank
also allegedly failed to apprise customers of the status of Simon Fairbairn .....................................................................................17
their disputed transaction claims, and to refund finance Dee and Emily Karawadra .................................................................28
charges and fees when chargebacks were resolved in favor
of customer. The CFPB is seeking an injunction against Suresh Dakshina ...................................................................................30
the bank, customer refunds and civil money penalties.
(Citizens, in a statement said it will "vigorously challenge" Dana Sills .................................................................................................32
the CFPB's action.)
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