Unfortunately nothing is perfect and in a system with so many users, errors and fraud does occur. To protect the payment system, consumers and merchants from abuse and excessive costs, remedies are in place to handle disputes between members. The basics of this are in the retrieval request and the chargeback. Requesting of information (particularly sales drafts) to clarify a sale is called the retrieval request and the reversing of unauthorized or incorrect sales is a chargeback.
Before transactions get to be disputed they often need some clarification. If the cardholder simply doesn't recognize the name on his credit card bill he may request a copy of the sales receipt bearing his signature. To comply with these requests merchants must print receipts from the terminal (an electronic card reading device) or imprint the card with a slide over a pre-printed carbon form. Additionally whatever form of draft is used it must have a signature line and the merchant is required to obtain the signature before completing the sale. This doesn't apply to merchants using an Internet merchant account, but you do not have as much protection for that reason code as retail merchants that obtained a signature.
Sales Draft Storage:
In addition to properly obtaining signed receipts the merchant or the acquirer must save the sales receipts (also called drafts). Acquirers or merchants are required to hold drafts on-site for 3 years, and hold them off-site for 7 years.
Sales Draft Retrieval:
The acquirer or the acquirer's retrieval processing area receives copy requests from issuing banks. Visa and MasterCard regulations stipulate that a request must be fulfilled within 30 days from the date of receipt. Any request not fulfilled within that time frame can be charged back to the merchant.
Once the information is received back from the merchant, the acquirer needs to fulfill the request from the issuer. MasterCard requires all retrieval requests be fulfilled electronically through the MasterCom electronic image process system, while Visa will allow requests to be fulfilled through the mail along with Visa's Copy Request Manager System.
Acquirers tend to charge a fee to the merchant for handling retrieval requests by issuers.
When an issuer wants to dispute a transaction to the acquirer (either at the request of the cardholder or for reasons of its own), the matter is handled through a chargeback or compliance case.
In a chargeback, the issuer returns a transaction to the acquirer, and the acquirer returns the payment previously made in interchange. Chargebacks result either from cardholder disputes or from rule violations by the merchant or acquirer; they help enforce operating rules and correct transaction errors, such as ones that may occur with a credit card machine.
The initial, or first, chargeback is always initiated by the issuer. It can result from the issuer finding an error in the transaction, or it may result from a cardholder complaint.
MasterCard and Visa have developed standard procedures and time frames for submitting and processing chargebacks.
The Chargeback Process:
The chargeback process begins when an issuer, on its own behalf or in defense of a cardholder, returns a presentment from the acquirer.
Presentment is the stage of interchange when the acquirer, via the Visa/MasterCard system, presents the issuer with the transaction information. The issuer is automatically charged for the transaction during settlement, which takes place at the same time as clearing. In other words, the issuer receives information about a transaction, for which it has already paid, and realizes that the transaction may be invalid. At this point, the issuer wishes to charge the transaction back to the acquirer. This is called the first chargeback. The acquirer may opt to dispute the chargeback and re-present the charge with additional information to the issuer, this is called representment. The issuer may at this point (after reviewing the additional information) either accept the charge, or initiate a second chargeback. At this point the acquirer does a third presentment. The issuer can at that point initiate an arbitration chargeback and the case will go to MasterCard or Visa (whatever bankcard was used) and the association will arbitrate over the issue. The vast majority never makes it through this entire process and is resolved right away.
Functions of the acquirer in case of a dispute:
This information has been provided by USMS.
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