Recurring Billing Chargebacks: The Reason Codes to Know

Recurring Billing Chargebacks: The Reason Codes to Know

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Subscription billing merchants are typically more familiar with customer disputes compared to merchants who don’t use a recurring payment strategy. But not through any fault of their own—recurring billing chargebacks essentially come with the territory. Last week, the Chargeback team kicked-off a 3 part series with a merchant introduction to chargebacks and customer disputes. Now we’re honing in on the specifics of customer disputes as they apply to subscription billing merchants specifically.

Today’s post takes a look at the chargeback reason codes used to describe recurring billing disputes and the main variations in dispute types.

As a subscription billing merchant, looking at what recurring billing dispute situations dominate your unique chargeback ecosystem will provide invaluable insights into existing operations. (Most importantly, how to improve and optimize them!)

Recurring Billing Dispute Situation #1-A

The cardholder cancelled the recurring transaction by notifying you (the merchant), but he or she was still billed for the following transaction.

Card Network Visa Mastercard American Express Discover
Applicable Chargeback Reason Code 41 4841 4544

C05

4541

A very common subscription billing dispute occurs when the cardholder withdraws permission to charge his or her account for a recurring transaction. Each card network has its own reason code to represent this situation.

Under Visa’s product and service rules, this dispute is extended to apply to situations where the transaction amount was outside of the preauthorized range provided by the cardholder.

In addition, Visa reason code 41 can also represent situations where the merchant had agreed to notify the cardholder before each transaction, but failed to do so at least 10 calendar days before the transaction date.

Furthermore, if the merchant does notify the cardholder prior to 10 calendar days before the transaction and the customer does not authorize the charge, the conditions for the chargeback are met.

Recurring Billing Dispute Situation #1-B

The cardholder notified you of recurring billing cancellation, but multiple subsequent transactions have taken place.

Card Network Visa Mastercard American Express Discover
Applicable Chargeback Reason Code 4860 C10

C28

AP

There can also be instances where multiple transactions took place after the cardholder notified you of recurring billing cancellation.

In this case, the cardholder is requesting a credit for each of the post-cancellation charges. Mastercard chargeback reason code 4860 is used to represent credit not processed situations often present in recurring billing disputes.

Similarly, American Express reason code C10 and reason code C28 refer to either multiple cardholder notifications or multiple unauthorized recurring billing transactions. Discover reason code AP applies to these situations as well.

Situation #1-A & #1-B Potential Operational Implications

If your business is seeing the majority of recurring billing chargebacks come through representing the situations described above, then you need to look at internal operations.

  • What process or procedures occur after a customer contacts you to cancel his or her subscription?
  • How many employees are involved in the process?

If cancellations aren’t making it to the proper individuals to process them, then it’s critical to identify and address these weak points to prevent future disputes of a similar nature from happening in the future.

Recurring Billing Dispute Situation #2

The cardholder does not recognize your merchant descriptor on his or her billing statement.

Card Network Visa Mastercard American Express Discover
Applicable Chargeback Reason Code 75 4837

4863

177

93

6021

7010

Confusing or cryptic merchant descriptors are the root of a sizeable portion of recurring billing disputes. These disputes are particularly common if another entity becomes the merchant of record for your transactions.

If that company’s name appears on the cardholder’s statement, instead of your own, it inevitably leads to confusion.

The reason codes used to describe this dispute fall under the Fraud/No Authorization category of disputes. The cardholder is claiming an unauthorized transaction, which the issuing bank treats as potentially fraudulent.

In reality, the situation is not fraudulent at all—the cardholder is simply mislead by the merchant descriptor.

Situation #2 Potential Operational Implications

If the bulk of your recurring billing disputes come at the result of cardholder confusion or non-recognition, your merchant descriptor needs some attention.

Your merchant description includes two variables: your DBA [doing business as] name and a city. Make sure your DBA name is less than 22 characters and presents your business in a manner that the cardholder will recognize.

Instead of using the field typically reserved for your operating city for its intended purpose, use it to display your website or your phone number. That way, the customer can quickly contact you if they’re confused about the transaction instead of their issuing bank.

Recurring Billing Dispute Situation #3

The cardholder’s payment method on record (credit card) was expired or not yet valid when the recurring billing transaction occurred.

Card Network Visa Mastercard American Express Discover
Applicable Chargeback Reason Code 73 4835 F22 EX

Credit cards expire within several years of issuance mainly to protect the cardholder from fraud and replace a relatively flimsy item that usually sees daily use.

The individual expiration date depends on the issuer, but it averages to about three years from issuing date.

As a result of this frequency, it’s easy for cardholders to forget to update every source that stores their credit card information.

Each card network has specific reason codes for this very situation.

Mastercard reason code 4835, Visa reason code 73, and Discover reason code EX all represent transaction disputes that took place on expired cards.

American Express reason code F22 expands this dispute’s applicability to cards that are not or were not valid at the time of the transaction.

Situation #3 Potential Operational Implications

Subscription merchants need to be particularly vigilant when it comes to monitoring validity of stored payment methods.

First and foremost, you need to keep an eye on your recurring billing transactions for indications of processing past the card’s expiration date.

Also, be sure to inform the cardholder after you attempt to process a payment on an expired card and let them know their payment information needs to be updated in order for your subscription service to continue.

Recurring Billing Dispute Situation #4

The cardholder was unaware that they were agreeing to a recurring transaction.

Card Network Visa Mastercard American Express Discover
Applicable Chargeback Reason Code 57 176

The final recurring dispute situation we’ll examine today represents situations where a cardholder was unaware that they were agreeing to a subscription at the time of the transaction.

In this case, the first billing installment typically passes without notice, as the cardholder was anticipating this charge to occur. However, when additional transaction start to occur, the cardholder contacts his or her issuer to dispute the purchase.

Visa reason code 57 and American Express reason code 176 are both used to categorize this type of recurring billing dispute.

Situation #4 Potential Operational Implications

This last dispute situation is a huge signal to businesses that the product or service offering is unclear to consumers.

Your subscription billing terms need to be separate from your standard terms and conditions, and must be clearly presented, described, and explicitly agreed to by the cardholder.

Out of all disputes associated with recurring billing, the business implications are arguably the strongest when the cardholder is unaware of the service for which they’re signing up.

encyclopedia-of-chargeback-reason-codes

Understanding why recurring billing disputes occur is essential to knowing the changes, if any, your business should make to prevent similar disputes from happening in the future.

Next week, we’ll outline how to respond to each of these situations with the right compelling evidence based on the card network associated with the dispute.

Looking for information beyond this Chargeback.com article? Visit the Chargeback blog for more awesome articles. If you’re ready to find out how RevGuard works with Chergeback.com to provide a complete chargebacks solution – contact us!
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