Starting April 15th, 2011 MasterCard began enforcing a new set of rules limiting the chargeback rights for issuers when a credit card account has had multiple chargebacks related to fraud. After a cardholder claims unauthorized charges it is up to the issuer to close and reissue the account, but failure to do so promptly can result in that card being used fraudulently many more times, leaving merchants to eat the cost of chargebacks that could have been prevented. The rule change affects several fraud related chargebacks, such as “Cardholder Does Not Recognize - Potential Fraud,” “Required Authorization Not Obtained,” and “Fraudulent Transaction.” When the second fraud related chargeback rolls in for a single account the date is noted, and transactions that occur after this date on the affected account that resulted in fraud or does-not-recognize chargebacks can be automatically won with re-presentment, as these chargebacks will now be considered invalid. Fraudulent transactions that occur after the date of the second fraud related chargeback on an account can still be charged back by the issuer, but a merchant’s acquirer can successfully re-present these chargebacks.
This is a welcomed change for merchants as MasterCard shifts the liability to issuers who should’ve closed compromised accounts more quickly. But it will be up to merchants to discuss these changes with their acquirers to be sure they are realizing the full benefits of these new rules. You may need to ask your acquiring bank if they will automatically recognize and dispute chargebacks that fall under this new policy. Or at the very least, an acquirer should include the second chargeback date in their daily feeds so merchants can quickly compare this date to the original transaction date, and if the transaction date is later merchants know to re-present.
For more information about these rule changes and how it may affect your business contact The Fraud Practice by calling 1-888-227-0402.