A chargeback has a complex and murky process. But it can lead to what is a called pre-arbitration. Think of it as the ghost of a second chargeback. It emerges after the original chargeback. And it makes another attempt to steal your revenue. Its outcome depends on the dispute and the outcome of the original chargeback.

It can get worse. If the cardholder or issuer lose, they can file for arbitration chargeback. That process is a whole other story for another time.

Pre-arbitration is fairly vague. So it will require some interpretation to figure out how it functions. Fortunately, we did the work for you.

The Life and Afterlife of Chargebacks

Each card network has its own approach to handle disputes. The terms may be different. But the process remains fairly unchanged. Here are its phases:

• Level 1/Phase 1: Retrieval Request or First Presentment
• Level 2/Phase 2: Chargeback
• Level 3/Phase 3: Second Presentment, Second Chargeback, or Pre-Arbitration
• Level 4/Phase 4: Arbitration

Pre-arbitration gives the acquirer and issuer another chance to resolve the customer dispute. This phase doesn't involve the card networks to make a final decision. First Data says pre-arbitration allows the chargeback case to be reviewed on the ‘merit of reasonableness’. So, was the original chargeback reasonable?

Causes of Pre-Arbitration

An issuer may issue pre-arbitration for several reasons. Some of it include:

• A reason code change
• The cardholder offers new information
• The issuer believes the acquirer's evidence does not disprove the dispute
• Terms and Conditions, and maybe Return Policies, that weren't properly disclosed during the transaction

There are several dispute reason codes that associate with pre-arbitration. And it's outlined in the table below.

Responses to Pre-Arbitration

The merchant and acquirer can respond to the issuer’s pre-arbitration. But only if it's based on the following grounds:

• Invalid reason code change
• Both parties have valid evidence to remedy the new reason code
• Evidence was provided for the initial chargeback. And it adequately remedied the dispute
• New information was not provided by the issuer

Avoiding Pre-Arbitration

It's crucial to confront pre-arbitration. But it's just as crucial to avoid it in the first place. There are practices for chargeback prevention that can be easily used to avoid this nightmare. Some include:

• AVS, CVV, and other fundamental fraud prevention solutions integrated into your checkout process
• Accurate and robust product descriptions
• Highly trained customer service advocates/employees
• Transparency in provision of return policies and procedures

Basically, pre-arbitration is a second chance for merchants to prove their innocence. It's always best to keep your records straight and transparent. That'll give you a head start to protect your business. You'll be able to prevent chargebacks along the way.

References: First Data