The behavior of cardholders during the COVID-19 crisis is setting up merchants to receive an increased number of disputes in the coming weeks and months. The combination of ecommerce purchases, high purchase volumes as cardholders expect many more weeks of quarantine, and the possible cut back in spending due to job loss or economic fear creates the perfect situation for fraud to emerge. In response to this expected rise in dispute volume, the card networks have released updated programs, timelines, and addressed FAQs for merchants during the COVID-19 outbreak.
Here is what merchants need to know:
Visa's COVID-19 Dispute Updates
Addressing COVID-19 Dispute Situations
First, let's review some of the dispute situations merchants find themselves in because of COVID-19 and the rights of the issuer.
Physical Good Disputes
In the following circumstances, issuers do have the right to dispute a charge when:
- The cardholder does not receive merchandise by the expected date. Cardholders must first attempt to resolve the issue with the merchant.
- The cardholder tries to return merchandise but is unable to because the merchant's location is closed due to the virus.
Disputes Involving Cancellation by the Merchant
Because of COVID-19 many merchants, especially in travel and entertainment, have postponed or canceled their goods/services. The issuer does have the right to dispute the charge when:
- The merchant chooses to cancel the goods or services. Because the goods/services were not received, the cardholder has the right to dispute the charge.
- The merchant chooses to reschedule an event, such as a concert or a sporting event, but the cardholder does not want to attend the event on the new date. The cardholder has the right to dispute the charge because the merchant is responsible for providing the service on the agreed-upon date.
- The merchant chooses to cancel the goods/services but offers to give the cardholder credit. The merchant files for bankruptcy before the cardholder can use their voucher. The cardholder could have disputed the charge and received a refund at the time the merchant gave the voucher. So the cardholder still has that right as long as the cardholder disputes the transaction within the allotted time frame which is either 120 calendar days from the transaction date or 120 calendar days from the last date that the cardholder expected to receive the merchandise or services, but not more than 540 days from the transaction date.
Issuers do not have the right to dispute the charge any time:
- The merchant cancels the goods or services because of government probation. Government regulations and laws surpass Visa's dispute rights. The cardholder will have to work directly with the merchant to resolve the issue.
- The merchant canceled the service which caused the cardholder to make additional purchases, such as a canceled flight caused them to get a hotel room. The extra purchases cannot be included in the disputed amount.
Disputes Involving Cancellation by the Cardholder
In the following circumstances, issuers do not have the right to dispute a charge when:
- A cardholder did not use services because of concerns about COVID-19. As long as the merchant was still offering services, they fulfilled their obligations.
- A cardholder did not make a flight due to travel restrictions on the cardholder. This also applies to non-airline merchants who kept their obligation to deliver services.
- A cardholder missed a flight and was unable to use a non-refundable service, such as a cruise or hotel reservation.
- A cardholder decides not to use a good or service then receives a voucher for future use. The merchant files for bankruptcy before the cardholder can use their voucher. The cardholder does not have the right to dispute because the merchant was able to fulfill the service at the time of cancelation.
COVID-19 Dispute Monitoring Program
Visa does expect an influx of disputes coming from cardholders during the outbreak. The card network will not change any dispute timelines or rules, but they will be implementing a COVID-19 Issuer Dispute Monitoring Program to help reduce invalid dispute volumes for merchants.
Visa's COVID-19 Dispute Monitoring Program was implemented on April 1st. The program monitors daily dispute volumes looking for any practices that are inconsistent with Visa's current dispute rules with special focus on consumer-related disputes.
Consumer disputes represent chargebacks initiated by the cardholder in regards to product, service, or merchant issues. The reasons for disputes categorized under consumer disputes are varied and can include circumstances like goods not received to canceled recurring billing.
Details of the programs are as follows:
- The program will monitor dispute volumes for airlines, entertainment, lodging, transportation, and travel services.
- Any issuer submitting more than 50 invalid disputes daily will be flagged by the program. For example, a dispute for goods or services not received is considered invalid if:
- It lacks a detailed explanation of the dispute reason
- The merchant is able to provide the service
- The cardholder has not attempted to resolve the dispute with the merchant directly
- Issuers flagged by the program will be required to reverse all invalid disputes within three business days.
- Failure to reverse invalid disputes and/or repeated flagging may be viewed as noncompliance and cause loss of access to filing Visa consumer disputes for relevant reason codes.
What the COVID-19 Dispute Monitoring Program Means for Merchants
The program is putting more pressure on issuers to validate the dispute they do approve. Issuers may be more inclined to have the cardholder reach out to the merchants to work out the problem directly. Issuers may also ask more questions surrounding the transaction. Ultimately the program is trying to slow the number of invalid disputes merchants receive by trying to catch the dispute before it's filed.
Excessive Disputes Programs During COVID-19
During the current crisis, Visa has modified its Excessive Dispute Programs to take away some burden from merchants impacted by the virus. The following changes have been made:
- The Visa Dispute Monitoring Program (VDMP) and Visa Fraud Monitoring Program (VFMP) will both be suspended for merchants in travel and entertainment through the July compliance cycle.
- The Visa Acquirer Monitoring Program will also be suspended for disputes arising from travel and entertainment merchants through the July compliance cycle.
- Regional Risk teams can suspend and/or waive VDMP or VFMP fees for non-travel and entertainment merchants that can demonstrate that the pandemic has directly impacted them.
What These Changes Mean for Merchants
Visa does not want to put merchants on watch lists because of the virus. If the virus has directly impacted the number of disputes your business receives, especially travel and entertainment merchants, Visa is trying to give leniency and overall make the situation easier on merchants and acquirers.
The April Business Enhancement Release is Postponed
Visa recognized that their clients might be running on a minimally staffed, fully-remote team, which can make it difficult for clients to implement any new requirements or changes. While the content of the April Business Enhancement Release will be the same, the update will be postponed to July 17th, 2020.
You can read more about Visa’s updates here.
Mastercard's COVID-19 Updates
Mastercard has provided some encouragement to cardholders to be patient and seek resolution through merchant refunds but has not published any direct guidance to merchants/acquirers that we have been able to obtain.
The April 2020 Release is Postponed Until July 2020
Mastercard planned to have all issuers included in Mastercom Collaboration on April 1st, 2020. Recognizing the situation that their clients are going through Mastercard, extended the flexibility for issuers to self-service their access to Mastercom Collaboration to July 18th, 2020.
Ethoca Alerts Are Being Issued for All Mastercard 1st Chargebacks
As of April 1st, MasterCard began issuing chargeback alerts through the Ethoca Alert Network for all 1st chargebacks. This allows merchants currently receiving Ethoca Alerts the ability to resolve disputes/chargebacks by issuing a refund. This effectively stops the forced settlement. Merchants need to just notify Mastercard of their intent to refund within 20 hours. Chargeback is a both a reseller and technology enabler of Mastercard’s Ethoca Alerts. You can learn more about Ethoca Alerts here.
Excessive Fraud Merchant (EFM) Program
For the next six months, Mastercard will continue identifying ecommerce merchants with excessive fraud. Acquirers should use this information to work with their merchants to reduce fraud. But, Mastercard will suspend assessments related to the EFM program. Assessments will begin November 2020, for violations occurring in October 2020.
Excessive Chargeback Program (ECP)
For the next four months, Mastercard will suspend the program to identify merchants in airline, cruise line, passenger railway and travel agent industries since these categories have been directly impacted by COVID-19. During this period, Mastercard will continue to monitor to determine if additional categories should be included in the list of suspensions.
If a merchant is identified in ECP, and has been directly impacted by COVID-19, acquirers can request an extension for compliance. The acquirer must clearly explain how the merchant has been impacted by COVID-19. If an extension is approved, assessments will not be applied during the extension period.
American Express’ COVID-19 Updates
Delay of April 2020 Publications to July 2020
American Express' April 2020 publication release (U.S. Merchant Regulations, Canada Merchant Operating Manual and Technical Specifications) has been delayed until July 17, 2020. This also means that any compliance mandates that were scheduled to take effect will now be effective no earlier than July 17, 2020.
Dispute Response Times Extended
American Express is extending the amount of time businesses have to respond to a dispute to 30 days. This gives merchants extra time to handle higher volumes and disrupted work environments. The extension will include disputes received March 1, 2020 through May 31, 2020.
Discover COVID-19 Updates
April 2020 Updates are Postponed Until July
Discover has postponed their April 2020 updates to July 2020.
Dispute Timeframe Flexibility
If merchants are unable to respond to disputes within the timeframe, they can work with their Discover Network Account Executive with a list of impacted dispute cases. Discover has pledged to review these on a case by case basis.
Merchant and Acquiring Partners Updates
- Acquirers and merchants are encouraged to work together with their customers to provide refunds, alternate accommodations, and/or vouchers for rescheduled events due to coronavirus restrictions.
- For the foreseeable future, acquirers and merchants are encouraged to stop charging ‘no show’ fees for cardholders in impacted areas, and to work with their customers to find a resolution.
- As applicable, merchants are encouraged to communicate with their customers and work together regarding potential delays or extensions of goods or services.
Issuing Partners Updates
- Issuers should advise cardholder to work with the merchant before initiating a dispute.
- Issuers should review the cardholder accounts for any credits or refunds that may have been applied by the merchant before initiating the dispute.
- Because the merchants responses may be delayed request Ticket Retrievals only when necessary
- For goods or services being rendered outside of the promised timeframe or by the timeframe set by operating regulations, issuers are encouraged to review these scenarios holistically and guide their cardholders to a resolution outside of the dispute process.
Accommodating All Partners
Discover has reiterated that, “Although the Discover Global Network Dispute team is working diligently to accommodate all partners during this unsettling time, it is a strong recommendation that Discover Global Network clients work together to resolve disputes outside of the standardized dispute process. Unless otherwise communicated, the current provisions documented in the 19.2 release of the Dispute Rules Manual still govern.”