Don’t Be Caught Off Guard with Credit Card Chargebacks! Part 2

By Kathy Olevsky

In last month’s column, we discussed credit card chargebacks and a case of “Friendly Fraud.” My school had experienced several transactions being reversed due to a customer dispute.

In most of the cases, our students actually participated in the classes they were disputing, and had expressed no issues. My research into chargebacks and credit card transactions turned up some interesting facts and helped me create a plan to keep my income secure.

According to David DeCorte with Chargeback911, “The timeframe allowed by Visa and Mastercard to dispute a single charge is 180 days. When it comes to recurring charges, however, the cardholder has much more leeway. The time frame allowed to dispute recurring charges involving the same transaction data is left up to the bank that issued the card.” 

He adds, “For example, a cardholder could enroll in a service involving monthly charges. Then, after two years, he could decide to dispute those transactions. If the person used the same cardholder information that entire time, the bank may allow them to dispute all two years’ worth of historical transactions.”

            DeCorte also says, “At Chargeback911, we’ve identified the recurring billing model as a definite risk factor for Friendly Fraud. This business model can be highly lucrative. But it’s vital that merchants maintain careful transaction records and engage in chargeback re-presentment when appropriate.”

On one of Chargeback911’s reports, their research indicates that 60 to 80% of chargebacks are due to Friendly Fraud, cyber shoplifting or other abuse.

In 2019, we decided we needed more information. We imagined a world where consumers become more and more aware of this Chargeback/Dispute Program creating less security in monthly membership enrollments. Our students know they are obligated to the martial arts school by Membership Agreement Contract, but they can still dispute the charges.

In any case, our income is now at risk, so we have decided to take steps to help minimize our possible loss:

1. Proper documentation. We need clear membership contracts, permission to debit with an imprint of the client’s card, and their agreement by signature as well as a clear cancellation policy.
2. Extreme customer service. We currently stay in touch with all of our clients by phone or email once a week for the first 100 days and once per quarter after that. In addition, we have clear promotion requirements with instructor notes on their class cards.
3. Easy Cancellation. Even though we have term memberships, we have made it easy to give a 60-day notice to cancel. From now on, when someone questions the 60 days, we’re just going to let them out of it to avoid possible disputes. It is better to let them cease payments than to have them go back and dispute, say, six months of previous payments.
4. Bank Drafts. The obvious solution is to stop collecting payments by credit card. We have found that our current generation of customers often don’t even have checks, although they do have checking accounts. Most use online banking.

With a little education, we help them access their checking account information. However, our program manager does not want to miss a sale by refusing credit card payment. After enrollment with a credit card, we offer them $25 off their first month’s tuition if they return with checking account information or a bank withdrawal form before the first payment is due.

While suffering four chargebacks in 2018 is not threatening the existence of our business, the possibility of one of our students claiming an entire year or two of membership fees is very concerning and a reason to take action.

Kathy Olevsky can be reached for questions or comments at [email protected].