Tips to Minimize Risk of Consumer Initiated Credit Card Chargebacks

Consumers are becoming more comfortable with disclosing their credit card
information to counterparties either over the phone or on-line. Part of this reason is the
explosion of websites such as Amazon and eBay. The convenience of these websites
hinges on the ability to make instant payment for the goods. The other reason consumers
have become more comfortable using their credit cards in this manner is the protection
that card issuers have given consumers against fraudulent purchases. In our industry, it is
common for a consumer to purchase parts or other merchandise, for example, over the
telephone or on websites like eBay. More and more, consumers are also using credit
cards to secure availability of a particular vehicle or finance approval without physically
visiting the dealership.

However, as you are aware from years of experience dealing with the credit card
companies, the relationship the credit card company looks to protect is that with the
consumer, and not necessarily your business. Businesses see accepting credit cards to
pay for purchases by consumers as a necessary evil in a modern world focused on
convenience and fluid transactions. As you evaluate ways to make transactions more
convenient for the consumer, remember to analyze your processes for handling credit
card payments. Failing to take simple steps can leave your business facing costly
chargebacks.

You create potential liability for your business when you accept payment by
credit card when the credit card is not present. An example of this type of transaction,
called a “Card not Present” or “MOTO” transaction is a consumer that authorizes the
dealership to charge his or her credit card over the phone to submit a down payment or
deposit on a vehicle. Another example is a consumer that orders a part from your parts
department and pays for it over the phone, using a credit card. In both instances,
employees often fail to have the consumer sign the slip if or when the consumer
eventually visits the dealership. Perhaps unbeknownst to you when you consummated
your merchant agreement, your business agreed to warrant the legitimacy of the
cardholder and the transaction to the bank that issued the card. If the consumer later
claims that the Card Not Present/MOTO transaction was unauthorized, the bank can
charge back the transaction. Because you do not have the consumer’s signature on the
payment slip, you will likely lose in these kinds of disputes.

The credit card industry is experimenting with services that will address some of
this liability as it relates to on-line sales. In the meantime, here are some processes you
can implement to help protect your dealership when conducting potential Card Not
Present/MOTO transactions:

1.  Ask the consumer for the Card Verification Value 2 (“CVV”) printed on the card.
Usually, this three-digit sequence is printed either on the front or back of the card,
near the card number or signature. If a criminal stole the credit card number,
but does not have physical possession of the card itself, this will thwart many
fraudulent transactions. Ask your website provider to help create a form on your
webpage, if you accept credit card payments there, that captures the CVV and
stores it securely. If you store the CVV somewhere, make sure your processes
comply with the law, such as the Red Flags Rules.

2.  Have the consumer provide his or her billing address, and do not ship goods
to any address but the billing address. For a fee, Visa or Mastercard provide a
service where you can verify the billing address. Consider obtaining this service
as an extra safeguard.

3.  Have the consumer sign for the product at the time and place of deliver, whether
that place is your dealership or the shipping address. If the consumer claims that
he or she never received the goods, this should firmly rebut that statement.
For sales of vehicles, cancel the previous charge taken over the phone and run the
transaction again in the presence of the consumer. Have the consumer sign the
credit card slip and retain this in your records. When doing so, make sure to have
the permission of the bank financing the consumer’s transaction, allowing you
to accept a credit card transaction for a down payment. Many banks agreements
expressly prohibit this practice and those that allow it often require prior notice.

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