I am yet to speak with a merchant who enjoys issuing a credit for returned merchandise or cancelled services. It is sometimes easier to accept having to do it, but it’s never fun. That said, you should always honor a customer’s request for a refund, provided it complies with your return and cancellation policies. In fact, sometimes you may be well advised to process a credit even if the refund request is not entirely compliant with your policies. Otherwise you leave yourself vulnerable to chargebacks, whose validity is determined based on the Associations’ rules, not your policies.
In this article I will review the reasons, conditions, limitations and processing requirements applicable to Reason Code 85, which applies to disputes over credit transactions, and will offer prevention strategies, as well as possible remedial actions you can take in response to this type of chargeback.
What Causes Reason Code 85
Typically, Reason Code 85 chargebacks are initiated when the issuer receives a complaint from a cardholder claiming that she returned merchandise or cancelled services and the merchant did not process a credit. This chargeback is usually caused, because the merchant:
- Did not issue a credit.
- Issued the credit, but did not deposit it with its processor in time for it to appear on the cardholder’s next statement.
- Did not properly disclose or did not apply a limited return or cancellation policy at the time of the transaction.
- Did not issue a credit, because the business does not accept returns, but did not properly disclose its return policy at the time of the sale.
Reason Code 85 can also be caused if the customer:
- Did not cancel a timeshare within 14 days of the transaction date.
- Did not properly cancel a guaranteed reservation or advance deposit transaction.
For this chargeback to be valid, the cardholder must have made an attempt to return the merchandise or cancel the services.
Reason Code 85 Rights, Limitations and Processing Requirements
All of the following conditions apply to this reason code:
- The chargeback amount is limited to one of the following:
- The amount of the credit transaction receipt, but no more than that.
- The portion of the merchandise or services returned or cancelled.
- The chargeback is invalid for the cash-back portion of a cash-back transaction.
- The time limit for Reason Code 85 is 120 calendar days from one of the following dates:
- The date of the credit transaction receipt or
- The date the customer attempted to return or cancelled the merchandise or services.
Additionally, at least 10 calendar days must have passed from the date of the credit transaction receipt, before Reason Code 85 can be initiated.
Reason Code 85 Re-presentment Conditions
Reason Code 85 chargebacks can be re-presented in one of the following circumstances:
- A credit transaction or adjustment was already processed.
- The chargeback is improper or invalid.
- The issuer did not include required information in the chargeback message text field.
Reason Code 85 re-presentments must be processed within 45 calendar days from the chargeback settlement day.
How to Respond to Reason Code 85
Your response to a Reason Code 85 chargeback will be determined by the circumstances, as follows:
|You never received, or accepted, returned merchandise or a cancelled service.||Inform your processor immediately, however be advised that a proof of cancellation is not required from the customer; a verbal request is sufficient.|
|Your customer returned the merchandise or cancelled the services in a manner not compliant with your disclosed return or cancellation policy.||Provide your processor with documentation proving that your customer was aware of, and agreed to, your policy at the time of the transaction. Specifically, your customer’s signature must be present on a sales receipt or other document stating your return policy.*|
|Credit was already issued.||If you have already processed a credit, inform your processor of the date on which it was issued.|
|Credit has not been issued.||If your customer returned merchandise or cancelled services in accordance with your policies, but you have not yet issued a credit, accept the chargeback. Do not process a credit at this time, as the chargeback has already done this for you.|
*If your return policy is on the back of a receipt that has been signed on the front and initialed on the back, you must provide your processor with copies of both sides of the receipt. If the return policy is on the back of the receipt and is not signed or initialed, it is considered that you have not provided evidence of proper disclosure.
How to Prevent Reason Code 85
You can prevent Reason Code 85 chargebacks by following a set of best practices. More specifically:
- Issue credits promptly. If merchandise is returned to you or services cancelled in accordance with your policy, issue a credit and send the customer a letter or email informing her that the credit has been issued to her account. Also inform the customer that it typically takes up to five business days to post a credit.
- Credits for gift returns. If a gift recipient returns a gift ordered by mail, telephone, or the internet, you can provide a cash or check refund, an in-store credit, or another form of credit. If the cardholder claims that a credit was not issued to her account for the gift, provide your processor with documentation or information showing that the credit was given to the gift recipient. For charge cards, the credit must be processed to the same account that was used for the original transaction.
- Issue the credit to the same card account. You are required to issue the credit to the same card that was used for the original transaction and give your customer a copy of the credit receipt. For gift cards you can issue a cash refund or in-store credit if the cardholder states that the gift card has been discarded.
- Your return policy must be clearly disclosed on the sales receipts. Your return policy should be located near the customer signature line. If the policy is on the back of the receipt, your customer must sign the front and initial the back. Additionally:
- If you operate a brick-and-mortar business, post your return policy near the cash register so that it is clearly visible to customers.
- For internet transactions, require the cardholder to click on an “Accept” or a similar button to acknowledge the policy.
- Timeshare and hotel cancellations. Timeshare and hotel merchants need to provide a proof that:
- Your customer did not cancel the timeshare within 14 days.
- Did not cancel a guaranteed reservation.
- The cancellation code provided is invalid.
- No-return policy disclosure. If you do not allow returns at all, “no returns” or similar words must be printed on all copies of your sales receipts near the cardholder signature line.
The single most important thing you can do to prevent Reason Code 85 is to issue credits promptly. Not doing so and making it difficult for customers to make returns and cancel services is a sure way to invite unnecessary disputes, many of which will just as surely lead to chargebacks and that is not in your interest. Even if you successfully re-present a chargeback and win the case, you will still have incurred additional back office expenses. Moreover, each chargeback, whether successfully disputed or not, counts toward the one-percent chargeback-to-total-transaction-count monthly limit that you have to comply with. If you don’t, you will get your merchant account terminated. In fact, that will happen before you come even close to reaching the limit.
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