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I wonder if publishing a NO-refund policy will prevent the chargeback?

As a business, we'll show it where the customers can see it -- on the website and include in emails invoices and sales receipts. By taking these actions, we demonstrate that we have taken measures so customers are well informed that we do NOT offer refunds after purchases have been made.

Is that enough to avoid a chargeback?

Now ofcourse, before anyone says it, we do not intend to cheat the customer with this policy in place, its just that we're basically a service provider who collects payment on behalf of the client from the customer (who paid the charge). Although we verify client details (phone, address etc..) and run occasional checks but just in case the client is unable to deliver the product/service for some reason, we don't want to be liable for the chargeback and the associated costs.

If not this, is there any other better way to deal with the situation? What do you do? Just absorb the charge and ban the client? Thats obvious, but what if you have more than one such client?

Edited to add:

What if we:

  1. Inform the user a few days before the charge (so they can't claim it was surprise).
  2. Charge at the END of the month when the customer has already consumed the service (so they can't possibly argue it was "not as described").
  3. Provide option to instantly unsubscribe prorated (so they can't argue that they couldn't opt out when they wanted)

... I hope then we can win most chargebacks?

Thanks

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3 Answers

up vote 3 down vote

If you are in the United States, or any other country with similar laws, your terms will have no effect on chargebacks. The US Truth in Lending Act governs all credit card transactions. In addition, if the credit card is not physically present at the time the transaction is made, other rules apply. Since the credit card is not physically present in most internet transactions, the stricter rules normally apply. To summarize them in simple English, if the consumer disputes the charge (card not present) the issuing bank must side with the consumer over the merchant, unless the merchant can prove what the consumer says is false. All your customer has to do is state you software or service doesn't work, or they never received it and you lose the case.

If you are in the US, nothing you do trumps the Fair Credit Billing Act of 1975. Take a look at the law and note that if your terms don't follow the law, your terms have no meaning.

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What if we 1) inform the user a few days before the charge (so its not a surprise) 2) charge at the END of the month when the customer has already consumed the service (so they can't possibly dispute that) and 3) provide option to instantly unsubscribe (so they can't say they couldn't cancel the service) -- won't we still win chargebacks with this? – Nimbuz Dec 21 '12 at 16:29
@Nimbuz Gary is 100% correct. Unless the credit card is present physically and you swipe it, verify the signature, get a signed receipt by the card owner (not holder since someone can use another persons card), verify the signature. You will not be able to stop a chargeback, even if you provide an email and show your terms. A simpler reason is this, banks and card issuers want to protect their customers. The chargeback fees come out of your bank account, the money for the refund comes out of your account. The bank's have a happy customer, and you can't do anything about it. – Anagio Dec 25 '12 at 11:00
Right, for instance, if you initiate a chargeback on an Apple store purchase, they refund it but block your account. – Nimbuz Dec 27 '12 at 8:51
I marked yours as the correct answer but I'm afraid you're WRONG. I just read the visa document on their official website, it says "Visa will support your policies, provided they are clearly disclosed to cardholders before the completion of a transaction", check it out at page 18: usa.visa.com/download/merchants/… – Nimbuz Jan 7 at 13:40
Nothing VISA, MasterCard, or American Express says trumps federal law. Please review the Fair Credit Billing Act of 1975. – Gary E♦ Jan 16 at 16:23
up vote 1 down vote

You don't specify what you're selling, so I'll be general:

In my e-commerce experience, any time you gird yourself for battle with you customers over money, you are setting yourself (and your customers) up for pain. Not only are these practices hard to enforce and win, they can easily scare off potential customers, lower your conversion rates, and eat up your time and energy. People hate seeing asterisks and fine-print.

... Even with a well-published no-refund policy, what if your customer simply told their bank "I never received the goods or services promised"?

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Digital goods only: software (zips, psds, books etc..) and subscriptions (to services on monthly, quarterly and annual basic). They can't simply refuse to have received the deliverable, because apparently email correspondence and logs (and even return policy) are considered sufficient proof according to PayPal in case of chargebacks. – Nimbuz Dec 21 '12 at 13:39
Once again, Federal law covers this in the United States. And that law says the credit card company must always take the consumer's word over the merchant's word in any contested case. Your logs are not considered proof in a court of law. A signed FedEx receipt is physical proof. – Gary E♦ Dec 27 '12 at 15:59
up vote 0 down vote accepted

Yes, its a good idea to prevent chargebacks.

See: http://usa.visa.com/download/merchants/chargeback-management-guidelines-for-visa-merchants.pdf

[...] Visa will support your policies, provided they are clearly disclosed to cardholders before the completion of a transaction.

Your website must communicate its refund policy to the cardholder and require the cardholder to select a “click-to-accept” or other affirmative button to acknowledge the policy . The terms and conditions of the purchase must be displayed on the same screen view as the checkout screen that presents the total purchase amount, or within the sequence of website pages the cardholder accesses during the checkout process

Edited to add:

Mastercard also states the same: http://www.mastercard.com/us/merchant/pdf/BM-Entire_Manual_public.pdf

In the event of a dispute, and subject to compliance with other Standards, such specific terms shall be given effect, provided that such specific terms were disclosed to and accepted by the Cardholder before completion of the Transaction.

Edit #2:

Although Google says different: https://support.google.com/checkout/sell/bin/answer.py?hl=en&hlrm=en&answer=165604

The Fair Credit Billing Act protects customers' rights to dispute charges for a number of accepted reasons. Generally, a policy that allows no refunds will not be upheld by the credit card associations.

As a best practice, make your business policies visible to buyers before they place an order. The Fair Credit Billing Act (FCBA) entitles buyers to issue chargebacks regardless of a merchant's business policies. However, if there's evidence that the buyer had the option to view your policies before placing the order, your chance of winning the chargeback increases.

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Is your question about preventing a chargeback, or winning the dispute in the event a consumer initiates a chargeback? It appears to be the first, but I don't see anything in your answer that would prevent a chargeback. And even if you were to win the dispute you are still stuck paying any chargeback fees. – Zuly Gonzalez♦ Jan 7 at 15:02
With stripe and other payment gateways, you do not pay the chargeback fee if you win. – Nimbuz Jan 7 at 17:20
That's a policy that will vary by vendor, but that wasn't really the point of my comment. My main point was that the source you cited in this answer doesn't support your claim "Yes, it's a good idea to prevent chargebacks". And the additional sources you added since my comment make it even more clear that it's not enough to prevent a chargeback. Note that the Mastercard source you cite states "subject to compliance with other Standards", and the Google policy you cite makes it very clear that a policy that allows no refunds will be ignored. – Zuly Gonzalez♦ Jan 7 at 17:54

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