Preventing Double Refund Chargebacks

It’s estimated that merchants lose $240 for every $100 in chargebacks through fees, penalties, merchandise lost, labor, and time spent in representment. However, the most infuriating chargeback complication is a double refund chargeback.

Let’s look at what a double refund chargeback is, how you can prevent it, and what to do when it happens.

A double refund chargeback is when a cardholder requests a merchant for a refund and initiates a chargeback for the same transaction. To avoid a chargeback, the merchant issues a refund, unaware that the cardholder intends to or already has filed a dispute. As a result, the cardholder gets their money back twice.

Studies estimate that nearly 10% of all chargebacks end up in a double refund chargeback. Two scenarios leading to double chargebacks include:

• A chargeback is filed after a refund – the cardholder contacts the merchant and asks for a refund. The merchant issues the refund, but the funds don’t reflect in the cardholder’s account immediately. The customer thinks the merchant ignored their request and initiates a chargeback. Eventually, the chargeback and refund are processed, and the cardholder gets back their money twice.
• Chargebacks are filed before issuing a refund – the cardholder reaches the issuing bank and files a dispute. They then contact the merchant and request a refund, and you honor the request before realizing a dispute is already filed.

These scenarios can play out innocently, but some cardholders may use double refund chargebacks to intentionally scam merchants.

Mastercard and Visa have set procedures to avoid chargebacks for already refunded transactions. For instance, they both require return authorizations for every return transaction. The process is like authorizations for initial transactions, only in reverse.

With this procedure, cardholders can see the authorization on their statement and track the funds until they reflect in their account.

Although return authorizations are a great initiative, they don’t provide a foolproof solution against a double refund after a dispute is filed. Solving the double refund chargeback problem requires a more comprehensive approach, and the blend of tactics and tools you use will depend on whether you are stopping the double refund before or after a dispute is filed.

Preventing a potential double refund chargeback requires great communication with customers about refund progress and prompt action on refund requests.  

• Inform the customer when you process the refund request
• Send an email when you issue a refund
• Give the customer an estimate of when the funds will appear in their account
• Follow-up with the customer to ensure they’ve received the refund

Merchants should train customer service agents to pick up on signs a customer has already filed a dispute.

For instance, when the customer says they’ve contacted the bank, it might be a clue they’ve initiated a chargeback.

Depending on the bank there are different timelines for dispute resolution and when they progress into chargebacks. However, if a dispute has been assigned a case number, the dispute has progressed into a chargeback.

Chargeback fees apply, and the chargeback ratio is affected when a case number is assigned. Even when the merchant wins the chargeback, this damage is already done. As such, it’s crucial to handle customer service interactions seriously.

If a customer alludes to calling the bank, the merchant should call the bank directly and determine if the dispute has been assigned a case number.

• If the case number is assigned, the merchant should decline the refund request since the chargeback has reversed the transaction amount.
• But if the case number hasn’t been assigned, the merchant should inform the bank of the refund and state that a chargeback is unnecessary.

When a double refund chargeback happens, merchants bear the brunt of the loss. Here’s how you can navigate through the representment process.

• If the chargeback is unfounded and a refund isn’t necessary, the merchant should cancel the refund request, note down the case number, keep an eye out for the chargeback, and fight it when it comes.
• If the chargeback claim is legitimate; the merchant should accept the chargeback.
• If the merchant issues a refund and the customer initiates a chargeback, you can fight the chargeback by proving you already issued a refund.

Preventing double refund chargebacks is frustrating and a lot of work in addition to dealing with regular chargebacks. You’d need to watch chargeback notifications, train customer service to look for double refund clues, and compile compelling evidence.

Hiring a chargeback mitigation company like Justt will ease the pressure on your team and protect your business from friendly fraud, including double refund chargebacks.

If you have more questions on double refund chargebacks, contact the Justt team to learn how our solution can help you recover revenue lost through friendly fraud.