common chargeback reason codes explained - credit card and mobile card reader on a table

Common chargeback reason codes explained

Sunday, November 23, 2014

If your business accepts credit or debit cards, you already know the unfortunate truth – chargebacks happen. When they do, you’ll be given an alphanumeric string of text that helps to identify the chargeback – called a chargeback reason code. In this article, we’ll cover the types of chargeback reason codes, common chargeback reason codes, and how you can use them to help your business prevent future chargebacks.

Breaking down a chargeback reason code

As mentioned above, a reason code is a string of text that helps you, the business owner, decipher the chargeback. Credit and debit card issuers developed them to standardize the list of acceptable chargeback reasons. When there’s a chargeback request from a customer, the issuing bank reviews the reason codes and selects the best reason for the chargeback. They can also reject the chargeback request if it does not fulfill the list of approved reasons. There are many reasons for chargebacks, and knowing the most common reason codes is essential to minimizing chargebacks at your business.

Each of the credit card issuers – Mastercard, Visa, American Express, and Discover – have their own sets of reason codes. It may surprise you that these codes are not standardized. For example, Mastercard uses a four-digit number while American Express uses a letter and then two numerical digits. Therefore, it can be confusing to decipher the various reason codes. While the issuing bank is the one to categorize a customer dispute, they use categorizations from the credit card networks. 

Here’s an example of the same chargeback scenario and how it appears for each card network:

  • Visa – 13.2 Canceled Recurring
  • Mastercard – 4853 Cardholder Dispute of a Recurring Transaction
  • American Express – C28 Canceled Recurring Billing
  • Discover – AP Recurring Payments

The above example shows a chargeback scenario where a customer claims a business charged them a recurring fee when they shouldn’t. As you can see, each of the card networks has a reason code for this, but each code is much different.

Knowing the reason code can help you dispute the chargeback, as you and your acquirer (the bank processing the charges) are more apt to gather the necessary information you need from your records to make a chargeback dispute. The reason code can also help your business identify its most prominent chargeback reasons and formulate a plan to fix the issue.

There are some time limits imposed by card networks on disputes. For most reason codes, the card issuer has up to 120 days after the transaction date to post the dispute. In many cases, after 120 days from the transaction date, the dispute is invalid.

Now that you know more about reason codes, let’s take a look at how each of the credit card networks categorizes chargeback reason codes.

Chargeback categories

As noted, each card network categorizes chargebacks differently. Often, the categorization can help you begin to diagnose the issue. You’ll notice that although each credit card issuer has different categories, there is some overlap. Let’s take a look at the categories for each issuer:
 
  • Visa – the four main categories are fraud, authorization, processing errors, and consumer disputes
  • Mastercard – the four primary categories are authorization, cardholder dispute, fraud, and point-of-interaction errors
  • American Express – the four categories are authorization, cardmember disputes, fraud, and processing errors
  • Discover – the four categories are cardholder dispute, authorization, processing errors, and fraud

The most common chargeback codes

Now that you know how chargeback reason codes are generally categorized, let’s dive deeper into some of the most common codes from each card issuer. First, let’s talk about common Visa chargeback reason codes.
 

Visa chargeback reason codes 

Reason code 13.1: Merchandise/services not received

Visa uses this reason code when a customer claims they didn’t receive the goods or services they ordered from your business. However, they must generally wait 15 days after the processing date before they can file a dispute on behalf of the customer. 

To fight this customer dispute, your business needs to provide documentation that you delivered or made the merchandise available or that the cardholder received said goods or services. If the agreed upon delivery date is in the future, you can provide documentation that shows it’s scheduled for delivery on that date.

To prevent future instances of this reason code, there are a few things you can do. First, ensure you’re abiding by the promised delivery date. If there’s an issue with the original date, communicate with your customer as soon as possible to work out a solution. Also, make sure to accurately describe the services customers will receive, so they know exactly when they’ll receive them. 

Reason Code 13.2: Canceled recurring transaction

This reason code happens when a customer claims you processed a transaction after they requested to cancel the recurring transaction. Alternatively, the issuing bank uses this code when the customer believes you processed a recurring transaction on a closed account. 

To fight this dispute, you’ll need to show documentation that the services your business provided the customer happened before the customer requested a cancellation. If the payment was a part of an installment plan or not a part of a recurring payment plan, your business will need to show documentation to prove it. You can also show documentation that you've already resolved the dispute or that the customer no longer wishes to pursue it.

To prevent future instances of this reason code, it’s important to keep an eye on these recurring transactions. First, if a consumer decides to cancel their recurring payments, it’s important to process this request promptly as well as send a notification of the cancellation. It’s also important to make sure you communicate your cancellation policy to your customers clearly and effectively. You may also choose to send recurring transaction reminders to your customers, letting them know a recurring payment will take place – especially if the recurring payments are spread out.

Reason Code 13.3: Not as described or defective

This dispute occurs when a customer notes that the goods or services didn’t match the description – whether written or verbal. This dispute also encompasses damaged goods, defective merchandise, or differing quality items. 

To fight this dispute, your business will need to submit proof that the customer’s claims are false. You’ll most likely have to address each point they make, and also may need to involve a third party to corroborate the quality of your goods or services. You may also provide evidence that the cardholder has not sought to exchange or return the item or items in question. If they have sought a return or exchange, you may provide documentation demonstrating that you fulfilled their request.

To prevent future instances of this reason code, ensure each of your product or service descriptions are accurate and not misleading. Also, review your packaging process to confirm your team is packaging the goods securely so they cannot break in transit.

Reason Code 10.4: Other fraud — Card-absent environment

This reason code indicates that a customer believes his or her card information was used in an unauthorized card-not-present transaction. This means the physical card wasn’t dipped or tapped – most likely indicating it was an online transaction. 

Fighting this dispute involves showing documentation that proves you followed all of Visa’s procedures, including showing the CVV2 card authorization. You may also need to provide other information to prove that you attempted to verify the card information at checkout.

To prevent future instances of this reason code, there are a few key things to implement. First, ensure your business uses all the security tools available to you – Visa Secure, the card security code (CVV2), and Address Verification Service. Next, use an easily identifiable billing descriptor so that customers will match transactions to your business. Also, it’s important to submit authorization requests for each and every transaction. Finally, during clearing, be sure to note the difference between card-present environments and card-absent environments.

Reason Code 12.6: Duplicate processing/Paid by other means

This code occurs when your business processes a single transaction multiple times. A less common occurrence happens when you process a card after the customer paid with a different payment method. 

To dispute this reason, you should provide documentation that the multiple transactions were separate and contained different goods or services. You may also provide evidence that the customer did not provide any other payment method outside of the card in question. You should also show if there is a record of the refunded duplicate transaction to the original credit card.

To prevent this reason code in the future, it’s best to issue a credit as soon as you spot a duplicate transaction. Also, if the customer requests to change payment methods, be sure to void the original payment. 

These are only a handful of common Visa chargeback reason codes. A few other common reason codes for Visa include late presentment; non-receipt of cash from ATM; invalid data; EMV liability shift non-counterfeit fraud; no authorization; canceled merchandise and fraud related to stolen cards on the card recovery bulletin. See this link for a complete list from Visa. Now, let’s take a look at some of the most common chargeback reason codes from Mastercard.

Mastercard chargeback reason codes

4834: Point of interaction error

This code is similar to the Visa Reason Code 12.6 and occurs when a merchant processes a single transaction more than once. Processing a card after the customer paid with a different payment method also falls under this category for Mastercard.

To dispute this reason, you’ll need to supply documentation that the transactions in question were separate and contained different goods or services. You may also be able to provide proof that the chargeback is invalid because it doesn’t adhere to Mastercard’s requirements. If the dispute suggests you charged a card after a customer provided a different payment method, you should provide evidence that the cardholder did not provide any other payment method. You should also show if there is a record of the refunded duplicate transaction to the original credit card.

To prevent this reason code in the future, it’s best to issue a credit as soon as you spot a duplicate transaction. Also, if the customer requests to change payment methods, be sure to void the original payment. 

4837: No cardholder authorization

This chargeback is a result of the cardholder claiming the card was used for an unauthorized transaction. This happens when someone fraudulently obtains a cardholder’s information or when a cardholder doesn’t recognize the merchant’s billing descriptor on his or her credit card statement. 

To dispute this reason, you’ll need to provide documentation that shows the cardholder did indeed authorize the transaction. You may also submit proof that the chargeback is invalid because it doesn’t adhere to Mastercard’s requirements. For this exact reason code, Mastercard has a lot of situation-specific addendums, allowing you to submit specific pieces of evidence for certain circumstances. 

Preventing this reason code in the future starts with using all the security tools available to you. These include Mastercard SecureCode, the card security code (CVC2), and Address Verification Service. It’s also important to utilize an identifiable billing descriptor so that customers will match transactions to your business. With in-person transactions, ensure you’re only using EMV chip-enabled terminals and utilize cardholder verification methods such as PIN numbers and signatures. Finally, during clearing, be sure to note the difference between card-present environments and card-absent environments.

4853: Cardholder disputes

This reason code for Mastercard contains a lot of different varieties of cardholder disputes. Below you’ll find the list of each followed by why they happen.

  • Cardholder dispute of a recurring transaction – cardholder believes he or she has canceled a recurring transaction and shouldn't receive a bill
  • Goods or services not provided – customer claims non-receipt of goods or services
  • No-show hotel charge – customer claims a hotel charged a no-show fee when they shouldn’t have
  • Addendum dispute – customer made an authorized purchase but then a second, unauthorized purchase was processed
  • Credit not processed – customer had a credit with the merchant that was not implemented
  • Goods/services not as described/defective – cardholder claims a misrepresentation of goods or services or defective merchandise
  • Digital goods $25 or less – unauthorized transactions occurred after collecting a customer’s payment information
  • Counterfeit goods transaction – cardholder claims they received not genuine and counterfeit merchandise
  • Transaction did not complete – customer believed the transaction was never processed, so they did not use the goods or services
  • Credit posted as purchase – merchant processed a transaction when they should’ve processed a customer credit

Each of these has their own unique processes for disputing, but they all revolve around the cardholder. In these instances, it’s best practice to try to work with the cardholder directly to help them navigate the issue before they get the card issuer involved.

4870: EMV liability shift

This reason code denotes potential fraud that occurred in a card-present environment in which the card was not read by EMV reader. This could have occurred if the merchant was not EMV compliant or a person executing the fraud convinced the merchant to swipe the card rather than dip it. Since 2015, the EMV chip liability shift means that the merchant can be held accountable for fraud if it fails to use the EMV chip reader. 

To dispute the chargeback, you’ll need to provide documentation that the card used was valid, authorized, and did not contain an EMV chip. Alternatively, merchants can also provide evidence that shows the transaction did not comply with Mastercard’s rules and is therefore invalid.

To prevent future instances of this reason code, small businesses like yours should be sure to only use EMV-compliant terminals for transactions, utilize cardholder verification methods such as PIN numbers and signatures, and take an imprint of any card that doesn’t contain an EMV chip.

4808: Required authorization not obtained 

This reason code is a result of a merchant not requesting authorization. Authorization is the process of the merchant talking to the issuing bank to confirm the necessary funds are available or that the card in question is not lost or stolen. 

To dispute the chargeback, you’ll need to present evidence to show authorization for the transaction within the time frame specified.

To prevent future occurrences of this chargeback reason code, get in the habit of sending an authorization request for every transaction. Your business should also incorporate Mastercard best practices and if adding a gratuity to the charge, do not exceed the recommended 20%.

Again, this is only a condensed version of all the possible Mastercard chargeback reason codes. A few other Mastercard reason codes contain illegible/incomplete transaction information, warning bulletin, incorrect currency, and authorization related chargebacks.

For the full list of reason codes, visit Mastercard. Next, we’ll take a look at American Express reason codes.

American Express chargeback reason codes

A01: Charge amount exceeds authorization amount

This reason code denotes that the authorization approval is less than the amount charged to the card. This can happen when a merchant tries to process a card that was already declined or there was a manual entry error.

To dispute this chargeback, your business will need to provide documentation that the authorization approval matches or exceeds the transaction amount. You may also demonstrate that the transaction was an exception to the rule. 

Preventing future occurrences is straightforward. Once you receive authorization approval, do not charge the card for an increased amount. If adding gratuities, be sure to maintain the 20% tolerance level.

C04: Goods/services returned or refused

American Express uses this reason code when a cardholder claims to have returned goods but not received a refund. The other use would be when a cardholder refuses a good or service and they did not receive a credit.
 
Disputing this chargeback means showing proof that your business has not received a return of said merchandise. You may also need to show your return policy and outline how the cardholder failed to return the merchandise in a way that fits within the return policy. If the claim states that a customer refused delivery, you’ll need to show proof of delivery.

To prevent future occurrences of this chargeback reason code, it’s important that your return policy is clearly stated in-store and online. On paper receipts, print your business's return policy on the receipt. Online, look to require customers to click a box that states they’ve read and understood the return policy. If you do need to deal with legitimate cancellations, make sure you take care of them promptly so the credit will appear on the customer’s card statement as soon as possible
 
C05: Goods/services canceled

This reason code denotes that the customer canceled goods or services, but that the merchant failed to provide a refund. Often, this happens when a customer doesn’t read or disagrees with the merchant’s cancellation policy.

As a small business, you can dispute this claim by providing a copy of your cancellation policies as well as outlining how you made the cardholder aware of these policies before they made their purchase. If you have already refunded their cancellation, you’ll just provide documentation that proves you’ve credited their card.

To prevent future chargebacks related to this reason code, you should ensure your business has a well-defined cancellation policy. Similarly to your return policy, you’ll want to post the cancellation policy in-store and online. If you do need to process a cancellation, be sure to do it in a timely manner.
 
C28: Canceled recurring billing

Much like the other card issuers, American Express has a code for recurring billing issues. As discussed, this reason code happens when a customer claims you processed a transaction after they requested to cancel it. Alternatively, this code also indicates when the cardholder believes you processed a recurring transaction on a closed account. 

To fight this dispute, you’ll need to show documentation that the services your business provided the customer happened before the customer requested a cancellation. If the payment was a part of an installment plan or not a part of a recurring payment plan, your business will need to show documentation to prove it. You can also show documentation that you've resolved this dispute or that the customer no longer wishes to pursue it.

To prevent future instances of this reason code, it’s important to keep an eye on these recurring transactions. First, if a consumer decides to cancel their recurring payments, it’s important to process this request promptly as well as send a notification of the cancellation. It’s also important to make sure you communicate your cancellation policy clearly and effectively. You may also choose to send recurring transaction reminders to your customers, letting them know a recurring payment will take place – especially if the recurring payments are spread out.
 
F31:  EMV lost/stolen/non-received

American Express uses this chargeback reason code when a cardholder claims they did not participate in a transaction because their card was lost, stolen, or never received. This potential fraud can occur when a reader is not EMV enabled or the card was manually entered, bypassing EMV safeguards.

To refute this chargeback, you’ll need to show documentation that the dispute is invalid, that you processed the card through the EMV-enabled terminal, or provide proof that you've already credited the cardholder’s account.

To prevent future instances of this reason code, it’s important to only use EMV-compliant terminals when accepting credit cards. You should also utilize cardholder verification methods such as PIN numbers and signatures.

As you’ve seen, this is only a piece of the complete reason codes for American Express. To see the full list, visit American Express. Finally, we’ll take a look at chargeback reason codes for Discover.

 

Discover chargeback reason codes

UA02: Fraud – card not present transaction

Discover uses this chargeback when a cardholder claims he or she did not participate in a card-not-present transaction. This is most likely an online or over-the-phone transaction. Because the card is not present, it’s more probable that a counterfeit transaction can occur.

Fighting this chargeback involves showing documentation that proves you followed all of Discover’s procedures, including showing card identification (CID) code authorization. You may also need to provide other information to prove that you attempted to verify the card information at checkout.

To prevent future instances of this reason code, there are a few key things to implement. First, ensure your business uses all the security tools available to you – including the CID number and Address Verification Service. Next, use an easily identifiable billing descriptor so that customers will match transactions to your business. Also, it’s important to submit authorization requests for each and every transaction. Finally, during clearing, be sure to note the difference between card-present environments and card-absent environments.
 
DA: Declined authorization

Discover uses this reason code to denote a declined authorization for the amount charged to the card. This can happen when a merchant tries to process a card that was already declined or there was a manual entry error. Cards can be declined for a number of reasons including the cardholder has reached their credit limit, a large purchase, incorrect account number, incorrect card number, or an expired card.

To dispute this chargeback, your business will need to provide documentation of the authorization approval. You may also demonstrate that the transaction was an exception to the rule. 

Preventing future occurrences is straightforward. Once you receive authorization approval, only charge the card for that amount. If the card declines, ask your customer for another method of payment.
 
AP: Recurring payments

It’s not a surprise to learn that Discover also has a chargeback reason code for recurring payments. It’s used when a customer claims you processed a recurring transaction after they requested to cancel it. Alternatively, this code denotes when the cardholder believes you processed a recurring transaction on a closed account. 

To fight this chargeback, you’ll need to show documentation that the services your business provided the customer happened before the customer requested a cancellation. If the payment was a part of an installment plan or not a part of a recurring payment plan, your business will need to show documentation to prove it. You can also show documentation that you've already resolved the dispute or that the customer no longer wishes to pursue it.

To prevent this reason code in your business, it’s important to keep an eye on recurring transactions. First, if a consumer decides to cancel their recurring payments, it’s important to process this request promptly as well as send a notification of the cancellation. It’s also important to make sure you communicate your cancellation policy clearly and effectively. You may also choose to send recurring transaction reminders to your customers, letting them know a recurring payment will take place – especially if the recurring payments are spread out.
 
AW: Altered amount 

This reason code denotes that the customer believes there is an incorrect transaction amount. This happens when the amount charged differs from what the customer sees on their statement or if an ATM dispute occurs, where the customer receives a different amount of cash from the ATM than charged.

To fight this chargeback, you’ll need to prove that you’ve processed the amount correctly. This mostly consists of documentation that you processed the correct transaction amount. You may also show documentation that the customer signed and agreed to the transaction amount printed on the receipt, ATM withdrawal, or cash advance.

To prevent this reason code in the future, don’t change the transaction amount after approval unless the customer gives you consent. You should also take the time to double-check transactions before processing.
 
RM: Cardholder disputes quality of goods or services

This dispute occurs when a customer notes that the goods or services didn’t match the description – whether written or verbal. This dispute also encompasses damaged goods, defective merchandise, or differing quality items. 

To fight this dispute, your business will need to submit proof that the customer’s claims are false. You’ll most likely have to address each point they make, and also may need to involve a third party to corroborate the quality of your goods or services. You may also provide evidence that the cardholder has not sought to exchange or return the item or items in question. If they have sought a return or exchange, you may provide documentation demonstrating that you fulfilled their request.

To prevent future instances of this reason code, ensure each of your product or service descriptions are accurate and not misleading. Also, review your packaging process to confirm the goods are packed securely so they cannot break in transit.
 

As mentioned, this is only a partial list of common chargeback reason codes. For the full list, contact Discover.

Now that you’ve seen some of the common chargeback reason codes, you might wonder: can my business reverse these chargebacks? The answer is yes, and as we’ve seen, the chargeback reason code can help you determine the correct documentation you need to fight and win chargebacks.

In this article, we’ve discussed some of the most common reason codes a small business like yours will deal with. While not a comprehensive list, it should give you a better sense of how to deal with common reason codes as well as provide you with an understanding of reason codes so that you can use them to minimize chargebacks at your business.


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