Suit Calls Visa Chargebacks Unfair

T he issue of chargebacks for purchases of goods and services online is a thorn in the side of many e-tailers. To stay competitive, online merchants must offer their customers the option of paying for purchases with credit cards - and by some estimates, Visa and MasterCard retain at least a 75% market share of online consumer transactions.

Smaller or high-risk e-merchants have only one option: They must accept the criteria for chargeback reimbursement set by the two credit card companies, even if the restrictions and penalties are prohibitive.

Both Visa and MasterCard have classified some online businesses as "high-risk," which makes them subject to high fees, exorbitant penalties and limits on numbers of chargebacks allowed. They both have set policies that some claim are arbitrary and unfairly favor huge operations like Amazon.com, which Visa classifies as a bookseller as opposed to a high-risk e-merchant.

The latest salvo comes from online credit card processor WebsiteBilling.com, which is suing Visa over its chargeback policies, claiming that Visa has not refunded penalties for chargebacks that are reversed. WebsiteBilling, based in Hollywood, Fla., said that the Visa accounts of many of its e-tail merchants have been terminated because of allegations of excessive chargebacks. WebsiteBilling claims it often is able to reverse chargebacks by demonstrating that the charges were indeed authenticated through address verification or with cash credit voucher (CCV) codes. Visa claims that WebsiteBilling had 2,240 chargebacks in August, and WebsiteBilling says it expects 1,813 of those to be reversed at a penalty of $100 each. Visa says the penalties are levied only in extreme cases when the number of chargebacks is at least five times the average. Chargebacks for online sales volumes are around 12 times greater than for physical card-present sales at Visa, and e-tail merchants are fined heavily for exceeding chargeback limits. For merchants deemed "high risk," fees can range from $25,000 to $100,000 a month if their chargebacks exceed a low level set by both Visa and MasterCard.

Along with online merchants, high-risk businesses include travel agencies, taxi and limousine services, computer network and/or information services, mail-order houses, catalog merchants and membership clubs, and many types of online merchants. Visa restricts chargebacks for e-tailers to less than 2.5% of total monthly dollar volume or fewer than 50 per month. Penalty fees include a one-time $5,000 "review fee" for violations occurring in months one through five and a $25,000 fee after six months of violation.