What is Chargeback Litigation?

Is Visa Claims Resolution an Alternative to the Chargeback Litigation Process?

The litigation process has been the standard method to challenge credit and debit transactions for decades. The industry only started thinking of the chargeback litigation process once Visa Claims Resolution introduced an alternative way to resolve disputes.

What is a “Litigation-Based” Dispute?

The chargeback litigation process is a method of resolving payment disputes. As the term suggests, litigation-based disputes work like a courtroom trial:

1. The cardholder accuses the merchant of wrongdoing and files a chargeback.
2. The merchant can “plead guilty” (accept the chargeback) or fight back against the claim.
3. The merchant presents evidence to support its case, and the issuer reviews that evidence.
4. The bank issues a ruling, either in favor of its customer or the merchant.
5. The merchant can appeal the decision to the card scheme, like appealing to a higher court.
6. The card scheme initiates arbitration, examining the evidence and issuing a final ruling.

Unfortunately, a litigation-based dispute can be confusing and time consuming, and there’s no guarantee of success. If a merchant chooses to fight back, it’s not uncommon for the whole process to take several months before the dispute is finally settled.

How Does Visa Claims Resolution Shake-Up the Process?

Visa Claims Resolution (or VCR) introduced a new model to resolve disputes in April 2018. One of Visa’s main goals was to end a lot of tedious back-and-forth involved in chargeback litigation. They describe the new rules as “liability-based,” as opposed to litigation-based.

In VCR, the transaction goes through a workflow to try and filter-out as many disputes as possible.. In these cases, liability is assigned to whichever party is responsible (hence the name). This is achieved through the Visa Resolve Online (VROL) system, which stores transaction data to be instantly recalled when needed.

When a customer disputes a transaction, Visa compares the issue against data in the VROL system. If the evidence conflicts with the customer’s story, Visa can block the dispute. There are two main reasons why Visa would block a dispute:

• The allowable timeframe to file a dispute expired.
• The merchant already initiated a return on the item in question.

Otherwise, Visa can assign liability to the party responsible.

Can Visa Claims Resolution Replace Litigation-Based Disputes?

Visa claims that implementing their liability-based system speeds up dispute resolution times. It takes an average of 46 days to resolve a dispute using the litigation chargeback model. Visa’s goal for Visa Claims Resolution was to cut that down so no dispute would take longer than 30 days.

While VCR is a good step forward, studies on the topic suggest the real-world effect has been muted so far. Part of the problem is merchant education; lots of merchants still don’t know about VCR. However, most chargebacks are still handled using the litigation model because of the nature of the disputes.

Less than 10% of chargebacks are genuine criminal fraud. In most cases, friendly fraud and cyber shoplifting are the culprit. These are not legitimate reasons to file a chargeback. VROL wouldn’t auto-reject them, though, because it can’t identify them.

As mentioned above, Visa Claims Resolution is a good step forward…but we’re still far from making the litigation chargeback process obsolete.

Have Additional Litigation Questions?

Contact the Payment Dispute Standards & Compliance Council today to learn more.