Credit Card Chargebacks

[autolycus]

Hi,

For our website design services we currently allow customers to pay by cheque or credit card. Typically we take part of the payment before work starts and the rest at the end upon completion.

So far no problems.....

However, hearing about a problem faced by another business has prompted me to wonder if we are giving ourselves potential headaches by taking cards.

Suppose we do a website for someone and they become a "difficult customer". It hasn't happened to us yet, and hopefully never will - but it could. I'm thinking of a situation where we have done all we promised to do, and to a high standard, but for some reason the customer isn't happy - e.g. we design their site, they don't get as much new business from it as they had hoped (perhaps the product they are selling has no market), and then try to blame us.

If such a situation arose with a client who had paid by credit card, would they be able to get the card issuer to claim the money back from us? How easy would it be to fight such a thing with the card company? Would the onus be on us to prove we had delivered the service or would it lie with the customer to show we hadn't? Would such a dispute affect our credit rating with the card companies?

I can see how this kind of thing is pretty clear cut when you are selling a physical product, but can see how it could all get a bit subjective for a transaction involving professional services. Who judges whether the service was of a high enough quality for the price charged?

Any thoughts or real world experiences welcome.

Thanks,
Dave.

 

[autolycus]

PS - on the payment model we are operating, should we be pre-authorising the card right at the start for the payment that is due on completion, rather than just waiting until the end and doing it as a new sale?

 

[crus]

Personally, I would only offer payment by card if you have a watertight contract.

D

 

[bwglaw]

In haste...

Suppose we do a website for someone and they become a "difficult customer". It hasn't happened to us yet, and hopefully never will - but it could. I'm thinking of a situation where we have done all we promised to do, and to a high standard, but for some reason the customer isn't happy - e.g. we design their site, they don't get as much new business from it as they had hoped (perhaps the product they are selling has no market), and then try to blame us.

This is a contractual issue and is a matter for the contract and what was agreed between you and the client. If the site is not performing well in terms of sales, it is highly unlikely to be an issue for disputing payment unless you have made an agreement going beyond that of a service provider and you have agreed to be part of the project in some other way.

If such a situation arose with a client who had paid by credit card, would they be able to get the card issuer to claim the money back from us? How easy would it be to fight such a thing with the card company? Would the onus be on us to prove we had delivered the service or would it lie with the customer to show we hadn't? Would such a dispute affect our credit rating with the card companies?

I cannot give an opinion of the credit issues such as chargebacks. However, if the customer disputes a payment and effectively you are not paid for services rendered then the customer remains in breach of contract and you would have the option to make a claim against the customer for making a chargeback, which is effectively a refund.

Who judges whether the service was of a high enough quality for the price charged?[/quote

This is a matter for the Courts if a claim is made. The Courts may apply the Supply of Goods and Services Act and other consumer legislation.

A contractual matter depends on the facts and circumstances as well as documentation because some terms can be implied by performance or conduct etc. Some terms can be implied by 'standard practice' etc

If a customer makes card payment and then requests a chargeback and has not put any complaints or issues to you as the service provider to give you the opportunity to rectify the issues then the Courts are likely to take a dim view of this and may hold the view that the payment was deceptive in some way.

In addition to the above, it is argumentative whether a contract arises between the service provider and the Credit Card Company and whether the Credit Card company can be liable.

In avoid the above issues I would suggest you have a set of terms of business professionally drafted to include the above issues, and make it clear that in the event of chargebacks (etc) the client remains liable.

Jonathan

 

[autolycus]

Thanks for the advice guys.

Dave.

 

[SuffolkDesigns]

Last year I had a client chargeback for 6 months of hosting (paid monthly by card)
Cost me a fortune in chargeback fees and anything I said in my defense was totally ignored.

Found out later that the same person used to change hosts every 6 months and do the same thing each time, yet his side was taken each time.

 

[Rob Holmes]

Last year I had a client chargeback for 6 months of hosting (paid monthly by card)
Cost me a fortune in chargeback fees and anything I said in my defense was totally ignored.

Found out later that the same person used to change hosts every 6 months and do the same thing each time, yet his side was taken each time.

Yup - we've been stung like this - client was perfectly nice - chatty for 6 months - we've done all the extras, installed a few mods for them etc etc then we just get an email from worldpay.

Thing is they are traceable where they go next as you can just check where their domain is hosted

Rob

 

[Ozzy]

Yes that is correct, if you take payments with cardholder not present the card holder has 6 months to claw back the money and you have no leg to stand on. Its in the small print from the bank I'm afraid.

I get about 1 chargeback every couple of months, but with the volume of transactions I do I'm amazingly not that surprised or concerned by that. It use to be a lot higher but since I put fraud checks in place if I dont receive ID from someone within 4 weeks I always cancel the order and refund the money.

In your case David you have a stronger case anyway because the customer presumably signed a contract. Also, I believe (and you'd need to check), that chargebacks are only for cases when the customer claims not to have authorised the transaction. If you have a signed contract then they cannot claim this and and such cannot claw the money back - you shouldn't have a problem

Host, as Rob says, is different as its a purely online transaction.

 

[Rob Holmes]

Yup - I have to say chargebacks have all but ceased since we started refusing worldpay signups/payments from other countries except the UK. We use Paypal for the rest - had one claw back from them so far.

Rob

 

[yorkshirejames]

Also, I believe (and you'd need to check), that chargebacks are only for cases when the customer claims not to have authorised the transaction.

Hi all,

A cardholder can also make a chargeback (a legitimate chargeback in the eyes of their card issuer) where they have not received the goods.

As former Credit Card Services manager for an electrical chain, please can I suggest you stay clear of CNP (cardholder not present) - always get the person to come in and read the chip of the card and get them to enter their pin - this is about the only way to guarantee that the funds will not be clawed back by the issuer.

If you take online payments, you could theoretically do Verified by Visa/Mastercard SecureCode - but it is (arguably) not worth the hassle - what do the web designer people on here think about this?

If you do CNP (whether internet or phone) always do CVC2/CVV2 (the three numbers on signature strip/four for Amex) and Address Verification Service (the numbers in first line of address and postcode) and get some kind of signed document (by post or fax). It could also help if your goods are delivered by Recorded Mail/courier as you will have a POD.

Hope this helps




James

 

[cjd]

Also, do read the small print on your agreement - the card companies (particularly Mastercard) will fine you $50,000 if you have what they regard as a high level of charge backs in a month.

 

[Astaroth]

Basically if a customer wants to get a chargeback they will be able to do so. As others have mentioned however this doesnt void the contract and there is always the option of going through the courts to enforce the contract.

With these things you need to weigh up the occasional charge back against the loss of business for not accepting cards. For a webdesign company I wouldnt imagine that it would be a massive loss by not accepting cards however I guess it would be dependant on which types of customers you have.

 

[Cornish Steve]

I'm guessing that eBay came up with PayPal to solve this very problem. Charge-backs would have shot a big hole in their business model, so they came up with watertight solution: Offer a solution whereby they assume the risk of charge-backs.

I read messages and hear people say all the time that PayPal is not a serious payment option. Quite frankly, I don't understand why. Who else in the world offers charge-back protection? Clearly, the banks don't.

 

[confused]

Paypal also have a similar "protection" and is a downright ripoff in some cases, I'll give you an example:
A person I know does a lot of sales on ebay, not long ago, a paypal payment cleared, so the goods were dispatched. A few days later, an email from paypal said that the transaction was fraudulent on the buyers part and the funds had been withdrawn from the sellers account! this is AFTER the paypal payment had cleared. Because the buyer wasnt paypal verified (you only find this out if you look in detail or when you print a packing slip - unlike when you buy - you see they are verified right away) then there was nothing that could be done! Surely the paypal payment shouldnt have cleared, my argument to this was, if a bank cleared a cheque, and then subsequently took the money back out of your account, there would be hell to pay - to me this is the same and they shouldnt have been allowed to do it. When my friend spoke to paypal on the phone, they said it was all in the T&C and basically he had lost £100.

That said, I use paypal a lot, and would indeed like to see more people taking it as a method of payment - but this may increase the overall price due to paypal charges.

CALV

 

[tcameron]

Hi there. This is a very common problem and one which I have suffered. My advice to you would be to continue to accept cards as you will miss out on numerous opportunities if you do not.

A couple of things. First, ensure that at each stage of the project you secure sign off and agreement that the client is happy with what you have done so far. So, if you have advised the client that it will take four months to complete, at the end of each month you contact your client and have him/her look over what you have done and then you get them to sign off. There is some extremely excellent software which enables you to obtain client signatures online. The best one that comes to mind is called Echosign. (Confirm the legality of collecting signatures this way with your solicitor just to be absolutely sure).

Secondly, if you should suffer a chargeback, you will then have all the evidence in place indicating that you have in fact fulfilled your obligation to your client and you will have the documentation in place to prove it. It may seem a fussy method but in my experience, having signatures on agreements has not failed so far.

 

[Charlie B ACS]

Think that 5 years on, the OP may have found a solution!

 

[tcameron]

You know what, I think you are probably right.

 

[NEF]

Sorry to revive this thread. I recently posted regarding a credit card chargeback from a customer, I was using paypal pro as my payment processor, even though I have all evidence of postage and the buyers signature, he has had his money refunded and kept the item. Paypal state that credit cards are not covered by there seller protection policy... seems absurd so anyone can buy and claim back with a credit card even though they have signed for it..

Is there anything I can do in this case, should I take it to the small claims court, all I have is an address and paypal will not pass his bank details over stating the data protection act..

Its not a small sum its hundreds of pounds.