Newland's Business Notes

Oral Credit Card Charges —
A Bottomless Pit

Volume 2 Issue 6-- November/December 1998

Do you accept payment by credit card in your business for telephone orders? If so, watch out! In the last issue of Newland’s Business Notes, we talked about the importance of “getting it in writing.” Accepting credit card charges without written authorization can be a bottomless pit of problems, as a client of “yours truly” found out recently.

An advertising business (Newco) provided credit to Doctor Derk (D. Derk) who charged thousands of dollars of advertising work on a GothamBank Visa Card. Unfortunately, Newco took the order by phone and never got D. Derk to sign anything. Nine months later, D. Derk asked GothamBank Visa not to charge him for Newco’s advertising charges because he did not authorize them. Any business that takes oral authorization for credit card charges will likely encounter this problem.

Credit Card Issuers / Merchant Banks

Most banks and credit issuers, even large ones, don’t process the credit card transactions for their own credit cards. For example, the GothamBank Visa Card may be serviced by a national company providing credit card processing for many banks. Those businesses accepting credit card charges, like Newco, must rely on a merchant bank to process the credit card charges received, like those of D. Derk. Newco’s merchant bank (MerBank) was in California.

Surprisingly, when Visa asked Newco for substantiation of D. Derk’s charges, Merbank was far from helpful. Instead of informing Newco about the national charge-back policy of Visa (and probably MasterCard) that was, in fact, favorable to Newco, the merchant bank promptly put a “hold” on Newco’s account. This “hold” essentially froze any new credit card receipts by Newco. Newco’s credit card cash flow was terminated.

As often happens with government agencies and large businesses, MerBank employees reveled in the old roulette game of “Talk to X or Y; it’s his department.” Merbank acted as if it were hired by D. Derk and did nothing to help Newco, except agree temporarily to stop the hold on Newco’s credit charges. After some coaxing, MerBank allowed credit card charges to be processed again.

National Credit Card Policies

The national policy of Visa on “holds” and “charge-backs” is controlled by agreements between Visa and the issuing entities, usually banks. Mere mortals, like those millions who carry and use credit cards, are not likely to get copies of the national Visa charge-back policy. After much digging, and oral confirmation by several banks, however, I found that the Visa charge-back policy appears to be as follows.

Generally, credit card charges can easily be reversed for up to 60 days. Sixty to 120 days is more of a “gray” area. Some banks, like GothamBank Visa, tell their cardholders that the charge-back time limit is 60 days. As with all things in life, of course there are some exceptions, and there are probably other necessary exceptions to the 120-day charge-back rule for fraud and the like.

MerBank said that the question of charge-backs against Newco was entirely up to GothamBank Visa. After writing to GothamBank’s national office in South Dakota and upon calling them, my call (unbeknownst to me) was initially forwarded to Kansas City, whereupon I was promptly told by several supervisors that since I did not represent D. Derk, they could not, and would not, talk to me. I could not even discuss the national policy of Visa which applies to all Visa credit card holders, including me!

What’s the Message?

Be aware that if you accept a credit card charge on the phone and afterward there is a threatened or actual charge-back:

1. Don’t count on much, if any, help from your local bank or merchant bank;
2. Don’t expect the credit card issuer, like GothamBank, to communicate with you; and
3. Don’t overlook the Visa (and probably a MasterCard) national policy on charge-backs that can benefit your business.

Incidentally, D. Derk, did not get a charge-back!

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