n a recent posting on GS Online's MLS Forum, a merchant level salesperson (MLS) inquired about a mail order merchant receiving chargebacks even though the had signed contracts and proof of delivery. The chargebacks occurred because customers said "I didn't like it." The MLS wanted to know who determines whether merchants should get a chargeback and what they can do to defend themselves.

An MLS Forum member correctly responded that issuing banks initiate chargebacks but have no way of knowing about merchant contracts with customers or proof of delivery. Merchants can always dispute chargebacks by re-presenting them to issuing banks.

The most fundamental way for mail order merchants to reduce chargebacks is to promptly issue refunds or returns to customers when appropriate. In the example on the MLS Forum, the merchant cited was sending out goods with a high average ticket ($1,000 - $1,500). Merchants selling products in this price range are often targets of unscrupulous customers. For them, chargebacks are only half the problem; the other half is getting merchandise back. The last thing merchants need is customers not only keeping the goods but also initiating chargebacks under the Visa U.S.A. and MasterCard International reason code categories "Not as Described" or "Defective Merchandise" or under the "I didn't do it" categories such as "Cardholder Did Not Recognize Transaction" or "Fraudulent Transaction."

As an MLS, learn how chargebacks work and advise merchants of the following ways to help minimize them:

Improve Operations

Operational problems that often lead to chargebacks include failing to send out merchandise; sending the wrong merchandise; taking orders for backlogged items and failing to fulfill those orders; missing promised delivery dates; and double billing. Merchants should also keep customers aware of order status and only charge them once they have shipped the goods.

Properly Disclose the Refund Policy

Many mail order merchants' chargeback problems result from their refund policy. Merchants with a policy that limits refunds must properly disclose it to customers. A proper disclosure must never include a statement that waives a cardholder's right to dispute the transaction with the issuing bank.

Mail order merchants must include a disclosure of their refund policy on the order form, invoice or contract and in any catalogue or advertisement. The return policy may include a requirement that customers return products prior to merchants issuing a refund. If merchants properly disclose to customers that they are required to return products prior to being issued a refund, and chargebacks still occur, merchants should re-present these chargebacks to the issuing bank.

Re-presentments should include proof of delivery to the cardholder and order form documentation that shows the refund policy. The way for merchants to win delivery/return chargeback cases is to show proof that they delivered the product to the customer and proof that the customer returned the product.

Include the 800-Number

Always make sure that the descriptor placed on cardholder statements includes the 800-number that cardholders should contact if there's a problem with their order or if they want a refund. Many of the "I did not do it" and refund issue chargebacks require customers to contact merchants and wait 30 days before initiating a chargeback. The "Cardholder Did Not Recognize Transaction" reason code requires issuing banks to work with customers to try to identify the transaction. The easiest way to do this is with a three-way call to the 800-number on the descriptor. Merchants should answer the 800-number promptly.

Use AVS

Mail order merchants should use the address verification service (AVS) and enter all the information into the system. All fields should be completed including the ZIP+4 code.

Inputted information that is complete and accurate helps prevent chargebacks from occurring. This might be the difference between winning and losing a re-presentment. Incomplete fields mean the AVS match is not as complete and provides less protection. Response codes of "Y" (address and five digit ZIP code match) or "U" (address information is unavailable) in the authorization log shifts the liability from merchants to card issuers for certain fraudulent chargebacks.

Partial matches (code "P") might indicate that an incorrect address was inputted. Merchants should investigate this to decrease the number of returned packages or potentially fraudulent transactions. They can verify an address using a telephone number on the Internet. Merchants should decline some of the transactions when address and ZIP code do not match (code "N") or require that customers provide another form of payment.

Work with merchants to help them understand how chargebacks are occurring, and show them the proper steps to take to prevent and defend chargebacks. This will dramatically affect the total number of chargebacks that they receive. Fewer merchant chargebacks reduces acquirer risk and potential acquirer fines from card Associations. Merchants will be happy with you and will keep your relationship intact, allowing you to continue earning money on the account.

Visa offers "Card Acceptance and Chargeback Management Guide for Visa Merchants," which is a manual that you should read, understand and distribute to merchants with chargeback problems or potential chargeback problems. Download a copy at:
http://usa.visa.com/business/accepting_visa/ops_risk_management/chargebacks_dispute_resolution/index.html .

David H. Press is Principal and President of Integrity Bankcard Consultants Inc. Phone him at 630-637-4010, e-mail dhp@integritybankcard.com or visit www.integritybankcard.com .