Direct response marketers live on a precarious three-legged stool consisting of presentation, connectivity and payment. The most fragile of these legs is payment.

The rules governing the acceptance of electronic payments — both merchant services (credit cards) and ACH (electronic checks) — continue to become more complicated. Companies now have to face the daunting tasks of increasing governmental and credit card association regulation.

Of all of the issues involved, one of the least understood, frightening and damaging is chargebacks. Chargebacks are any disputed credit or off-line debit card sales that are returned to the acquirer (merchant's processing bank) for reimbursement of the cardholder's account.

Chargebacks can be procedural (issuer-initiated) or substantive (cardholder-initiated). Issuer-initiated chargebacks occur with various processing errors or for violations of Visa and/or MasterCard regulations. Cardholder-initiated chargebacks occur for reasons such as: goods or services never received; an incorrect transaction amount; or a duplicate transaction.

Oh My! I Just Received a Chargeback!

First, do not panic. Second, do not ignore.

A chargeback is transmitted to the merchant on a standard form called an "ICA-3." There are three pieces of information contained on this form that every merchant must understand: chargeback period, chargeback reason code and chargeback reference number.

The chargeback period is the number of calendar days from the central processing date of a transaction receipt during which the issuer may exercise a chargeback right. The period can vary from 45 to 180 days, according to the transaction type, with limited instances of extension up to 270 days. The reference code is a numerical code that identifies the specific reason for the chargeback. MasterCard and Visa each have unique codes. The chargeback reference number is issuer assigned and identifies the source of an outgoing chargeback.

Can I refute a chargeback? The simple answer is yes, but this is a very complex area. In addition to the "standard" information necessary to refute, you must understand the timeframes in which to respond.

There is a certain degree of variability here, but the quicker the better. In fact, mechanisms are in place for an appeals process with the MasterCard and Visa associations if your acquirer and/or processor stands by the negative decision. Before you challenge a chargeback, make sure that your documentation is complete.

What Are Chargeback Limits?

If your chargebacks exceed 1 percent of your total transactions, there is a high likelihood that the account will be reviewed. However, just as the total percentage of chargebacks can cause a merchant to be terminated, the type of chargeback holds significance as well.

For example, if there is evidence that chargebacks are due to fraud on the part of the merchant — and the reason code reflects this — there is usually no waiting for a one-percent rule to take effect.

What are the MATCH, MCMP and HRCMP?

Exceeding limits can lead to being placed on various watch lists or ultimately being banned from accepting payment cards. Merchants who exceed threshold or violate various rules and standards may be listed on MasterCard's Member Alert to Control High-Risk Merchant System (MATCH).

Multiple reasons exist for MATCH listing. For instance, reason code 04 for MATCH listing covers "excessive chargebacks/credits/disputes."

Visa also applies the 1-percent threshold and maintains two programs: the Merchant Chargeback Monitoring Program (MCMP) and the High-Risk Chargeback Monitoring Program (HRCMP). MCMP applies to all merchants with more than 100 total transactions per month and an overall transaction to chargeback ratio of 1 percent or greater. The HRCMP applies to merchants who are considered high-risk, including direct marketers, travel services, outbound telemarketers, inbound telemarketers and others.

The critical difference between the Visa programs is warning. In the MCMP group, Visa will issue a one-time warning before sanction, but in the HRMCP, no warning is issued. Fines and other penalties — including account termination — are imposed immediately.