Review of Visa’s New Chargeback and Cancellation Policies

We recently had a chance to see a presentation by Visa’s Senior Director of Global Seller Solutions, Brendan Grant, about the chargeback issues Visa faces with free trials and promotional offers, and their new chargeback and cancellation policies.

Merchants that provide free and discounted trials are having “an outsized impact on cardholders and issuers,” so Visa has launched several new rules and policy changes to their chargebacks. They created the presentation to help merchants understand what these new policies would involve.

The challenge Visa, merchants, and card issuers are all dealing with, according to customer feedback — “complaints & confusion” — is usually one of forgetfulness or ignorance. That is, the cardholders either forgot or did not understand that they had agreed to future transactions, like subscription services that have a free 7- or 30-day trial, for example.

TrunkClub subscriptions and other subscriber services will have to deal with Visa's new chargeback and cancellation policies. Customers will often forget that their cards were going to be charged on day 31, or they forget to cancel before the free trial ends. This is why subscription services like Netflix have begun sending email reminders several days in advance of the deadline, so they can not only reduce the number of chargebacks they receive, but also to ostensibly contest any chargebacks from people who say they didn’t know, despite a 72-hour advance notification.

They also believe that subscriptions for physical items — cosmetics, toiletries, clothing, meal prep, and so on — are more problematic than digital subscription services. That’s because the chargeback will often come after the products have been shipped. The customer can chargeback those items, and the service is not only out the sale of the order, but all the overhead spent fulfilling it in the first place. To add insult to injury, they often don’t get the item back to resell it.

Another challenge is that there is no mechanism to uniquely identify transactions,* but they recognize it’s an issue and that it could better benefit cardholders and issuers.

*Sounds like something that could be handled with blockchain. #JustSaying

There is also a lack of consistent standards in how disputes are categorized — they’re currently raised as “Fraud,” “Cancelled Recurring,” or “Goods/Services Not Received” — which causes unnecessary costs and an inability to track their problem areas. While these three categories seem like a good start, it makes sense to have certain codes that are specific to the different MCCs (merchant category codes) or types of businesses.

So based on the cardholder feedback and their own research, Visa updated their policies for merchants offering trial subscriptions.

For one thing, they require all subscription merchants to provide a digital receipt upon a customer’s enrollment. The receipt must disclose the terms and conditions, ongoing obligations, and a link to online cancellation. They also have to provide electronic notification (either email or text) with a link to online cancellation at least 7 days before the next month’s transaction takes place.

Merchants must also provide an easy way to cancel minimally online. “Easy online cancellation should be akin to unsubscribing from email distribution lists,” Grant said in the presentation. Also, the online cancellation must be valid regardless of how the customer originally signed up — door-to-door sales, pop-up store in a shopping mall, or filling out an online form.

Finally, in addition to providing language on clearer disputes, Visa also said they will increase their monitoring for compliance, including hiring mystery shoppers to look for appropriate disclosures, notifications, and proper cancellation process.

If you have questions or concerns about these new chargeback and cancellation policies, Corepay can help you navigate them. For more information, please visit our website or call us at (800) 408-0095.

Photo credit: ElCapitanBSC (Flickr, Creative Commons 2.0)