How to Manage Chargebacks Resulting from Declined Authorizations

Both Visa and MasterCard use special codes to designate chargebacks that result from declined authorization requests. Visa uses Reason Code 71 and its MasterCard equivalent is Reason Code 4808. Merchants should understand the reasons for this type of chargebacks and be prepared to handle them.

What causes these chargebacks? Chargeback reason codes 71 and 4808 are caused when merchants ignore a declined authorization response from the issuer and attempt one of the following actions:

• Forced posting. After an authorization request is declined, the merchant forces the transaction through, typically by key-entering it, without making another authorization request.
• Multiple authorization attempts. After an authorization request is declined, the merchant swipes the card over and over until the transaction is authorized. Such authorizations might occur if the card issuer’s authorization system times out or becomes unavailable for some reason.
• Split transaction. A merchant may try to circumvent the system by splitting the amount into multiple transactions when an authorization request for a certain amount is declined. Then the merchant will submit each transaction separately.
• Alternative authorization methods. Alternative authorization methods include key entering a swiped transaction for which authorization has been declined or making a voice authorization request and receiving an approval.

How to handle declined-authorization chargebacks? Processors have the capabilities to verify whether or not an authorization request was approved and, if that is the case, these types of chargebacks will be rejected as invalid and merchants will never see them. However, if you do receive a chargeback with a reason code 71 or 4808, follow these procedures:

• Transaction was authorized. If you have obtained an authorization approval code, contact your processor and provide the transaction date and amount.
• First authorization attempt declined. If your first authorization attempt was declined, there is no remedy and you should accept the chargeback. Be advised that multiple authorization attempts following the first one most likely will not be accepted as a proof that authorization was obtained.

How to prevent chargeback reason codes 71 and 4808? Merchants who follow standard authorization procedures will see few, if any, chargeback reason codes 71 or 4808. In particular, to avoid this type of chargebacks, you should:

• Always obtain authorization. You should always obtain authorization for transaction amounts that exceed your floor limit and never force them through if you receive a decline. Today authorization requests are sent out automatically by most POS terminals and payment gateways. Floor limits are typically specified in merchant processing agreements. For card-not-present transactions, the floor limit is always zero, which means that they must all be authorized.
• The terminal is down or the card’s magnetic stripe is damaged. If the card’s magnetic stripe cannot be read, either because of an issue with the terminal or with the card itself, you should call your processor’s call authorization center for a voice authorization. If an approval is obtained, write the approval code on the sales receipt and imprint the card’s information on the sales receipt as well.
• Never accept a declined transaction. If an authorization is declined, do not accept the transaction and ask your customer for an alternative payment method. Do not try to circumvent the authorization system as you will probably lose your chargeback re-presentment rights.

Train your staff. Your company’s sales staff should be adequately trained on your organization’s authorization policy. Most importantly, the point-of-sale staff needs to understand that, if an authorization is declined, they should not try to force the payment through, but ask for an alternative payment method instead.

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