Understanding Arbitration and Compliance Disputes. May 2014

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1 Understanding Arbitration and Compliance Disputes May 2014

2 PRE-ARBITRATION/ARBITRATION

3 MasterCard With MasterCard chargebacks, the issuing bank can initiate a second cycle chargeback if the cardholder continues to dispute the transaction after reviewing the merchant s response to the original chargeback. This new chargeback can either be for the same reason code as the original or for a different reason code if the information previously provided by the merchant and the cardholder support a new dispute. A good example of when a reason code might change would be when the original reason code was for non-receipt of merchandise. The merchant provides proof that they provided a red shirt, and the second cycle comes in for not as described because the cardholder had ordered a blue shirt. 3

4 MasterCard (continued) When the second chargeback is received the merchant has 45 days to respond, submit a pre-arbitration to the issuer and file for arbitration. If the merchant decides to continue to fight the dispute they will submit a pre-arbitration request to the issuing bank. In an attempt to settle the dispute without the assistance of MasterCard. This pre-arbitration request will outline their reason for denying the cardholder s claim, documentation to support their reasoning, and the date that they plan to file for arbitration. 4

5 MasterCard (continued) If the pre-arbitration request is accepted by the issuer, they will either send a credit to the acquirer or request that the acquirer send them a debit fee so that the merchant can be credited for the dispute. If the pre-arbitration request is declined by the issuer or they do not respond, the merchant can either accept the dispute (choosing to pursue the cardholder outside of the credit card dispute process) or choose to file for arbitration. If the merchant files for arbitration the issuer will be contacted via MasterCom and is given 10 days to either respond to the filing or withdraw and accept the dispute. 5

6 Visa With Visa chargebacks, the issuing bank can initiate a prearbitration or file direct arbitration if the cardholder continues to dispute the transaction. This must be done via a system known as VISA Resolve On Line (VROL). Attempts received outside of this system are not recognized by Visa. The pre-arbitration/arbitration must be submitted by the issuer within 30 days of the chargeback representment. 6

7 Visa (continued) The pre-arbitration should include any rebuttal to previously provided merchant documentation, documents to support any new information being presented, details of any reason code changes (if applicable), and date arbitration will be filed. From the date received, the merchant has 30 days to respond to the prearbitration via VROL. If the merchant accepts the pre-arbitration the acquirer will send a request thru VROL to the issuer either informing them that they have sent them a credit or asking the issuer to debit them for the dispute. 7

8 Visa (continued) If the merchant declines the pre-arbitration their response will be sent to the issuer using VROL along with any documents needed to support their reason for denying the cardholder s claim. When receiving a decline to the pre-arbitration, the issuer must decide to either accept the dispute or file arbitration on VROL. If the issuer files for arbitration the merchant will be contacted and is given 14 days to either respond to the filing or withdraw and accept the dispute. 8

9 Arbitration Facts If the case goes into arbitration, the Review Committee for the appropriate credit card association analyzes the documentation from both parties to determine the final decision. They base their decision on the validity of the documentation as it applies to the reason code for the dispute. Disputes can be ruled in favor of either the merchant, the cardholder, or both, with the associated fees being paid by either or both parties. The committee s ruling will outline both who is financially responsible for the disputed amount, as well as the who is responsible for the fees associated with the arbitration filing. The adversely affected party may appeal a Visa arbitration ruling if the case is greater than $5,000 and they can provide new information. This must be done within 60 days of the ruling notification. This appeal is final. A MasterCard ruling can be appealed if a written request is received postmarked within 45 days of the ruling notification. This appeal is final. 9

10 Arbitration Fees Technical/Violation fees may be applied regardless of the association s decision. When a party withdraws from arbitration they are financially responsible for the filing fees that have already been assessed. Association fees Filing Fee - $150 (MC), $250 (V) Review Fees - $250 Technical Fees/violation fee - $100 per occurrence If an appeal is requested additional filing fees may be assessed to the party who requested the appeal, regardless of the final outcome. Discover s pre-arbitration/arbitration process can be initiated by either the merchant or the cardholder (depending on who was ruled against during the previous chargeback). 10

11 Common Technical Fees Persisting with an invalid chargeback. Submitting an invalid second presentment. Submitting an invalid documentation indicator code (selecting the option that states no documents being sent when supporting documents are required for the reason code). Processing a chargeback cycle past the time limit. Any association rules violation(s) found by the review committee while reviewing the case (such as the merchant storing the security code for future use, charging a card to recover unpaid debt, charging a card for damages, loss or theft, etc.). 11

12 PRE-COMPLIANCE

13 Pre-Compliance Facts Pre-Compliance is an attempt to resolve a dispute arising from violations of the association operating regulations where a financial loss has occurred and no chargeback right, representment right, pre-arbitration right, or arbitration right is available. A pre-compliance case can be submitted by either the issuer or the acquirer if a rule has been violated and it has resulted in a financial loss. From the date of discovery of the rule violation, Visa allows a 90-day time frame to submit a pre-compliance, as long as this does not exceed 2 years from the transaction date. MasterCard allows 180-days from the transaction date to submit the precompliance. Compliance ruling appeals and Fees are the same as those for Arbitration. American Express and Discover both handle compliance issues with specific reason codes using the normal retrieval and chargeback process.

14 Pre-Compliance/MasterCard The filing party must supply documents to prove rule violation, proof of financial loss, and any pertinent notes needed for the receiving party to review the case. The receiving party has 30 days to respond by either accepting or declining the pre-compliance. If the receiving party declines the pre-compliance, or doesn t respond within 30 days of the pre-compliance then the filing party has the option to file a Compliance case with MasterCard. When a compliance case is filed MasterCard will contact the filed against party and they have 10 days to either withdraw (accept) from the case or provide a rebuttal. MasterCard will then review and rule on the case (similar to the arbitration process) and provide their ruling to both parties. 14

15 Pre-Compliance/Visa Filing party must supply documents to prove rule violation, proof of financial loss, any pertinent notes needed for the receiving party to review the case, and any other documentation needed for a fair assessment of the violation. The receiving party has 30 days to respond by either accepting or declining the pre-compliance. If the receiving party declines the pre-compliance, or doesn t respond with 30 days of the pre-compliance, then the filing party has the option to file a Compliance case thru VROL. When a compliance case is filed VROL will contact the filed against party and they have 14 days to either withdraw (accept) from the case or provide a rebuttal. Visa will then review and rule on the case (similar to the arbitration process) and provide their ruling to both parties. 15

16 GOOD FAITH

17 Good Faith Facts Good Faith is an attempt to recover funds outside of the association time frames. These can initiated by the issuer on the cardholder s behalf or the acquirer on merchant s behalf. If initiated for the cardholder, the issuer will attempt to recover the cardholder s funds by sending all relevant documentation to support their claim to the acquirer. This information is then forwarded to the merchant, who has the option of accepting the good faith and having the acquirer forward the funds (through the issuer) to the cardholder or declining the request. If initiated for the merchant, the acquirer will attempt to recover the merchant s funds by sending all relevant documentation to support their claim to the issuer. This information is then forwarded to the cardholder, who has the option of accepting the good faith and having the issuer forward the funds (through the acquirer) to the merchant or declining the request. 17

18 Good Faith Facts There are no specific regulations set forth by VISA and/or MasterCard in regards to good faith cases. They are strictly handled outside of the associations. Even though Visa/MasterCard do not regulate good faith requests they do allow the use of their systems (Visa Resolve Online and MasterCom respectively) to transmit the requests. The party that receives the good faith (issuer or acquirer) has the option to assess a fee for processing the good faith collection. This fee typically ranges from a flat $50 to 10% of the accepted amount. The most common reason for a good faith request to be sent is because either the cardholder or the merchant missed the required timeframes to submit or respond to a chargeback. 18