02/22/2006: "Chargebacks and What Some Merchants Do to Combat Them."

I've discussed an online business person who chargebacked just under $5000, his total fee, and left me holding the bag. In those previous articles I also included some clauses that can be used in agreements to protect yourself. I unfortunately did not use an agreement.

First, let's look at what a credit card chargeback is. Here's what Dr. Merchant of Dr. Merchant Business Services says (the misspellings and misuse of words are his, not mine.):

Dr. Merchant's definition of a chargeback:

"A chargeback is like bad check you cannot collect" Think of a chargeback, like a bounce check, with a closed account, which is difficult to collect, even if you take legal action. It's worst. It's a nightmare!"

1. They purchase your merchandise or service,
2. you get an authorization,
3. they dispute the bill,
4. the bank takes your money,
5. plus charge you an additional charge-back fee.
6. Now, you are out of the merchandise and your money.

Here is the full article.

Certainly you need to check with an attorney about the right clauses to use in your own agreements and on your Web site. I'm only providing some samples and some wording that other businesses use in their own quest to keep these chargebacks down and to punish those who wrongly chargeback what is owed the merchant.

World Net has a chargeback clause that I like. I'm posting a portion of it below:

Payments/fees. The terms for all fee based services are clearly described on the web site and through ongoing promotions. Clients choosing to pay for enhanced services (Enhanced, Logo, and Special Spot Listings) are responsible for keeping their listing information current through their Client Control Panel on ScubaSpots.com. Furthermore, it is the client's responsibility to know which package they have purchased, as well as the terms described at the time of purchase and to faithfully pay the monthly or annual fee. Our systems keep detailed tracking logs to prove authorized purchases. All charges are FINAL. There will be NO REFUNDS for any payments made regardless of the subsequent service provided or whether such service has met the expectations of the client. In the event of a credit card fee chargeback by a client, WorldNet will rebuke the chargeback with securely documented information proving the validity of the charge. The client will then become liable for all associated chargeback and service fees and penalties - plus an additional amount of not less than $500 in each instance for administrative fees, court costs, etc. In the event a client does not pay these fees within 30 days, the charges will be turned over to a collection agency. WorldNet will file civil charges against any party who charges back a credit card payment for any reason. There is NO excuse for a charge back - ScubaSpots.com provides highly visible means for canceling service. Chargebacks serverely damage WorldNet, Inc. and its ability to provide quality web sites and services like ScubaSpots.com. THIS POLICY IS DESIGNED TO PROTECT WORLDNET AND OUR CLIENTS.

The full text can be read here. This is Worldnet, Inc. Terms of Service for ScubaSpots.com.

SearchSystems.net has another good clause. It reads in part:

I understand that once the $4.95 DirectPass monthly Subscription fee is charged to my checking or credit card account, unless evidence satisfactory to SearchSystems.net is presented to the Website that the charges were incurred as the result of identity theft/credit card fraud by a person other than the actual cardholder, no refund will be granted for part or all of that fee. I understand that if I try to circumvent either of these policies via the use of a credit card "chargeback", legal proceeding or other means, I will be liable for the full value of the disputed membership fee, as well as attorney's fees, reasonable costs and liquidated damages in the amount of $1,000.00. I also understand that monthly subscriptions may be canceled by me at any time, but no refund will be made for unused subscription periods . . .

As you can see, the chargeback issue is a serious one and one that all businesses take seriously. This is especially hard on service companies as one cannot get back his time or talent for which the client owes the service provider money. Amazon can accept a returned book. But those of us who sell services cannot take back the hours spent or the service rendered. Would a lawyer allow a chargeback if one was unhappy with his services?

Notice that these clauses refuse to give refunds.