Do “No Chargeback Agreements” With Buyers Work?

As someone concerned about chargebacks, I’m always looking for ways to prevent them. I may have found a small but helpful method. I’ll share my findings here, even if “may” does some heavy lifting.

I’ll cover what no-chargeback agreements are, their legality, their effectiveness, and other methods to prevent chargebacks.

Let’s start with what they are.

Key Takeaways

• A no-chargeback agreement is a terms of service clause where customers agree not to file disputes.
• These agree0ments are legal.
• They don’t effectively prevent chargebacks.
• Better prevention methods include alerts, clearer product descriptions, and fraud detection.

To save you time, no-chargeback agreements won’t reduce dispute rates. Chargeback alerts will.

Learn more about these alerts.

What Does “No Chargeback Rights” Mean?

"No chargeback rights," or “no chargeback agreements,” means customers agree not to dispute purchases with their bank. E-commerce merchants use this to prevent fraud and costly disputes. This type of agreement is often used by e-commerce merchants to protect their business from chargebacks.

In short, this term means the customer agrees to accept a product and won’t file a chargeback.

To recap, a chargeback (or dispute) occurs when a customer requests their bank to reverse an order. There’s a specific process we cover in another piece.

Let’s get back on track:

Imagine a transaction with this type of agreement. A consumer orders a product on your site. Before checkout, you include a disclaimer that states customers accept the terms of service (ToS), including a clause where they agree not to file a chargeback if the merchant fulfills their obligations.

The merchant’s obligations include:

• Accurate transaction details
• Product as advertised
• Delivery within the specified timeline
• Fulfillment of all promises made to the customer

If the customer accepts the ToS, this agreement becomes binding.

When the customer receives their product as promised and still attempts a dispute, you could use this no-chargeback clause to prevent a pre-dispute or inquiry from escalating to a full chargeback.

The purpose of this clause is to establish an agreement where the customer won’t initiate a chargeback. Legally, it’s supposedly binding.

Is that — legal?

‍Summary: A “no-chargeback agreement” is a terms of service clause where customers agree not to dispute orders.

Can Merchants Have a “No Chargebacks” Agreement?

Yes. Merchants can include "no chargebacks" clauses in sales agreements or terms of service. While these aim to discourage chargebacks, their effectiveness is limited. Customers retain the right to dispute charges through their bank, regardless of such agreements.

Because you can have them doesn’t mean they’ll work, though.

Summary:

Yes.

Do No Chargeback Agreements Work?

No chargeback agreements are not legally binding in any country. Consumers cannot forfeit their right to a chargeback under the Fair Credit Billing Act. There’s no data that shows how effective they are (if at all) at preventing chargebacks.

Under the Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA), customers have the right to recover funds in cases of merchant error.

If a customer files a chargeback anyway, it often means:

• You didn’t fulfill your obligations under the terms of service.
• The transaction may involve fraud.

A no-chargeback agreement is only helpful during pre-dispute or retrieval request phases. Pre-disputes occur before banks issue a formal chargeback (or fund reversal). If you receive a chargeback alert, you can provide a screenshot of the clause and a link to your ToS as evidence.

As long as fraud isn’t involved, and if the customer provides invalid evidence, the issuer might decide in your favor, preventing a chargeback.

A retrieval request is similar to a pre-dispute but occurs just before a chargeback. Not all card brands have this stage.

I bring up these stages because they avoid chargeback fees and don’t affect your chargeback rate.

It’s essential to understand the impact of dispute fees and chargeback rates on your business. We have guides on both topics for further insight.

Anyway:

Once a chargeback proceeds past these stages, the no chargeback agreement didn’t serve its purpose.

In rare cases, it could help you win a chargeback. Winning a chargeback doesn’t impact your chargeback rate.

However, most payment processors (except Shopify Payments) won’t refund fees if you win a dispute.

How could this clause improve your odds of winning?

Banks usually favor customers in chargebacks, with merchants winning only 30% of cases. But if the customer can’t prove that you didn’t meet your ToS obligations, this agreement may help.

This agreement doesn’t guarantee a win, but it can improve your odds. Additional tips are available in another guide.

If you insist on creating a policy, anyway, let’s see how that’s done.

Summary: Sometimes they help prevent chargebacks.

What Does a No Chargeback Agreement Have?

A no-chargeback agreement would appear in your terms of service. Here’s what it should include:

• Title: Use “No Chargebacks” to clarify the clause’s intent.
• Customer commitment: State that the customer agrees not to issue or threaten chargebacks under any circumstances.
• Payment methods: Specify the payment methods (e.g., credit card, Stripe, PayPal) covered.
• Broad scope: Include “for any reason whatsoever related to the Program” to ensure full coverage.

You could include a clause in your ToS that states if customers file chargebacks, you’ll ban them from your website. I don’t recommend this. Unless you want to drum up a lot of controversy, like Sony did when they banned users for chargebacks.

I doubt you’re a hundred billion dollar company that could sweep the controversy under a rug.

What does this look like in practice?

Here’s an example I found from a Booking.com listing:

‍Screenshot source: Booking

Here’s the no chargeback agreement template I’d use:

1. No Chargebacks

The Customer agrees not to issue or threaten any chargebacks to [Company Name] or any payment method (e.g., credit card, Stripe, PayPal) for any reason related to the services provided by [Company Name], as long as [Company Name] delivers the promised product or service.

This isn’t legal advice. Consult a legal professional when creating this clause, as incorrect phrasing could lead to issues down the line.

This is especially true in the US, where customers have a legal right to file chargebacks under the Fair Credit Billing Act.

How would you add this to your terms of service?

To add this to your terms of service, use “No Chargebacks” as a subheader. Place the clause below it. Position it after the refunds or payments clause for hierarchy, making it easier for customers to locate.

Since these agreements aren’t that effective, what are some better ways to prevent chargebacks?

Glad you asked.

How Do I Prevent Chargebacks Without a No Chargeback Agreement?

Here are ways to prevent chargebacks without relying on a no-chargeback agreement:

1. Chargeback alerts: Receive early notifications to respond quickly to potential chargebacks.
2. Chargeback management services: Use professionals to handle disputes.
3. Fraud detection tools: Use software to identify and block fraudulent transactions.
4. Provide accurate product information: Use clear, honest descriptions.
5. Strengthen your terms of service: Outline policies clearly to manage customer expectations.
6. Enhance customer support: Resolve issues promptly before they escalate.

For detailed prevention strategies, see our in-depth guide.

For tips on preventing “friendly fraud,” we recommend a dedicated article on that topic.

Let’s expand on each point.

1. Chargeback Alerts

Chargeback alerts notify businesses of potential chargebacks before they escalate. These alerts let businesses proactively address issues, reducing disputes.

There are these major providers: Ethoca Alerts, CDRN, and Rapid Dispute Resolution (RDR).

We compare them in more detail here.

Chargeback alerts are especially useful for e-commerce businesses, high-volume transactions, or those approaching a 0.65% chargeback rate. They’re also beneficial for sellers with lower transaction values and digital products.

And they’re kind of a pain to implement. You’ll need to coordinate with Verifi and Ethoca’s support teams to access the full range of alerts. Working with a certified reseller can streamline access to these services.

That’s when you should consider a certified reseller (like us). We — they make it easier to access these alerts.

Or you could consider chargeback management services.

2. Chargeback Management Services

Chargeback management services assist businesses in managing and reducing chargebacks. They offer tools to analyze data, identify patterns, and track chargeback reasons.

These services can also assist with dispute management by guiding businesses through the process of fighting chargebacks. They often include tools for evidence collection, making it easier to respond effectively.

A business might need to use services when experiencing a high volume of disputes or when they lack resources to manage them.

For smaller businesses, partnering with resellers that provide individual services may be more cost-effective.

For more information, check our guide on chargeback management or see our comparison of different services.

Fraud detection is something some of these services include. How could that help?

3. Fraud Detection & Prevention

Fraud detection tools like Address Verification Service (AVS) and card security codes (CVV) help verify cardholder identities, reducing the risk of fraudulent transactions.

Using 3-D Secure 2.0 can decrease chargeback rates by up to 40% by authenticating cardholder identities during transactions [1].

Machine learning models can further improve fraud detection by flagging suspicious transactions in real time.

These techniques improve fraud detection but won’t reduce chargebacks due to product dissatisfaction. For those, accurate product information is essential.

4. Accurate Product Information

Your product must give customers an idea of what they’re getting. It shouldn’t leave any room to guess. Otherwise, the customer will feel like they’ve been ripped off and file a dispute. And rightfully so.

To avoid chargebacks, ensure your product descriptions are clear and precise. Descriptions should cover key details, such as:

• Size
• Materials
• Usage instructions
• Features and benefits

Photos are also critical. Use multiple angles to give customers a thorough view, and include lifestyle images to show the product in real settings. Adding video demonstrations can also enhance understanding and set realistic expectations.

Accurate, detailed information reduces confusion, dissatisfaction, and the likelihood of chargebacks.

Next, focus on improving your terms of service (ToS).

5. Improve ToS

Besides no-chargeback agreements, other updates to your ToS can help reduce disputes:

• Use straightforward language.
• Require customers to check a box at checkout to confirm ToS acceptance.
• Ensure the ToS is easy to locate.
• Avoid large text blocks for better readability.
• Clearly outline return and cancellation policies.

Here’s a sample return policy that I’d write:

You may return items within 30 days of purchase if unused and in original packaging. To initiate a return, please contact customer service at [email/phone]. Return shipping costs are the customer’s responsibility.

Orders can be canceled within 24 hours of purchase. After 24 hours, cancellations are not guaranteed. To cancel, contact customer service at [email/phone].

Refunds are processed within 7 – 10 business days after receiving the item. Original shipping fees are non-refundable. For questions, contact customer service.

For these processes to run smoothly, strong customer support is essential.

6. Have Better Customer Support

Research shows that 81% of customers file disputes out of convenience [2]. Often, inadequate customer support is a contributing factor. And as I’ve noticed, around 42% of B2C companies use chatbots, which frequently fall short in handling customer issues effectively [3].

Many of these chatbots have been useless (in my experience) in dealing with issues. If I were a customer trying to deal with an issue with my product, and had no way to reach support, I’d file a chargeback too.

Such improvements include having close communication with a customer throughout each process of a sale (e.g., fulfillment and delivery). You could take this a step further and ask for feedback on a product from a non-automated email.

I get this requires resource, but look:

In 2020, 40% of customers stopped doing business with companies due to poor customer service [4]. I, too, have quit many services due to awful service. This, along with chargebacks, results in a loss of profit.

Anyway. That’s it for this piece.

Wrapping Up

No-chargeback agreements generally don’t prevent chargebacks effectively. Including them in your terms of service might prevent a few, but they won’t reduce your dispute rate much.

For better results, consider chargeback alerts. They’re among the most effective tools, although they can be challenging to set up. We offer easy access to all alerts in one place.

Give them a try.

Sources

• [1] 3D Secure 1 vs. 3D Secure 2. Mymoid. 08/22/2022.
• [2] Merchant’s guide to winning chargebacks. Justt. 06/06/2024.
• [3] Chatbot statistics. Tidio. 10/18/2024.
• [4] Share of customers in who stopped doing business. Statista. September 2020.