Mastercard Chargeback Reason Codes: The Ultimate Merchant's Guide
From my experience as an e-commerce merchant, I've encountered my share of chargebacks stemming from Mastercard transactions.
I aim to share this knowledge, giving you insights into how to navigate these reason codes.
Within each category, we'll delve into the specific reason codes, their root causes, preventative measures, and the evidence required to contest any resulting disputes.
Let’s explore some reason codes.
Key Takeaways
- All reason codes require merchants to reply within 45 days.
- Reason codes give customers 90 — 120 days to file a chargeback after the transaction.
- Some reason codes give customers a maximum of 540 days to file a chargeback.
- Mastercard recategorized and retired many of its reason codes in 2016.
Important to Know
Remember these rules, programs, and information when dealing with Mastercard chargebacks. We discuss this information in more depth in our Mastercard chargeback guide.
Throughout this guide, we recommend evidence to submit to Mastercard during a dispute. Use this information as guidance. Provide the evidence that Mastercard requests.
540-Day Rule
The 540-day rule refers to the maximum time frame for a cardholder to dispute a Mastercard transaction. So long as the goods or services were not received or not as described.
This timeframe starts from the transaction date and typically allows for 90 — 120 days from the date the cardholder becomes aware of the issue. However, it cannot exceed 540 days.
Mastercard's Excessive Chargeback Program
Mastercard's Excessive Chargeback Program (ECP) aims to reduce excessive chargebacks by monitoring merchants' chargeback ratios and volumes.
Sellers with 100 – 299 chargebacks in a calendar month or a chargeback-to-transaction ratio of 1.5% are enrolled in the program.
Or they’ll be placed in the “High” Excessive Chargeback Program when they breach 3.00% or have over 300 chargebacks a month.
They potentially face fees and must implement corrective actions to lower their chargeback rates.
Chargeback Criteria
The criteria for a successful chargeback depend on the specific reason code.
Generally, the customer must provide compelling evidence supporting their claim, and the merchant must be unable to refute it with sufficient documentation.
1. Reason Codes for Cardholder Disputes
Notes:
- All reason codes under this category allow customers up to 120 days to file a chargeback (instead of 90).
1 - Credit Posted as a Purchase
Description: Credit mistakenly processed as a charge.
Causes:
- Merchant error during refund processing.
- Processing system glitch.
- Cardholder misunderstanding of statement.
Prevention:
- Double-check all refund amounts and transaction types.
- Use clear communication with customers regarding refunds.
Evidence:
- Documentation of communication.
- Transaction documentation.
Legacy Code: 4860
2 - Counterfeit Goods
Description: Goods believed to be counterfeit or unauthorized replicas.
Causes: The buyer received fake items.
Prevention:
- Source products from reputable suppliers and manufacturers.
- Inspect inventory for signs of counterfeiting.
- Provide proof of authenticity (e.g., certificates, receipts).
- Implement a strict return policy for counterfeit claims.
Evidence:
- Proof of purchase from authorized distributors.
- Invoices or receipts from suppliers.
- Certificates of authenticity for the products.
- Detailed product descriptions and photos.
- Communication logs.
3 - Goods / Services Not as Described (or Defective)
Description: The goods / services received were not as described or were defective.
Causes:
- The product does not match the description.
- Item arrived damaged or broken.
- Service did not meet agreed-upon standards.
- Seller sent the wrong item to the purchaser.
- Quality is lower than expected.
Prevention:
- Accurately describe products and services.
- Use high-quality images in product listings.
- Clearly state refund and return policies.
- Package items securely to prevent damage.
- Respond promptly to buyer inquiries or complaints.
Evidence:
- Proof of accurate product description or service agreement.
- Photos or videos of the product received by the buyer.
- Communication records.
- Proof of delivery and tracking information.
- Inspection reports or expert opinions (if applicable).
4 - Addendum Dispute
Description: Unauthorized charge added to a valid transaction.
Causes:
- Merchant error during transaction processing.
- Miscommunication about additional charges or fees.
- Unauthorized user accessing cardholder's account.
- Shopper forgets about authorized charges.
Prevention:
- Clearly disclose all charges and fees upfront.
- Obtain clear authorization for any additional charges.
- Send transaction confirmations with detailed breakdowns.
Evidence:
- Proof of cardholder authorization for all charges.
- Documentation of transaction details and communication.
- Evidence of security measures in place.
Legacy Code: 4859
5 - Goods or Services Not Provided
Description and Cause: The customer didn’t receive the goods or services they were charged for.
Prevention:
- Send a confirmation email with purchase details.
- Use a recognizable business name on the billing statement.
- Require signature upon delivery for high-value purchases.
Evidence:
- Proof of delivery (tracking information, signed delivery receipt).
- Communication logs.
- Documentation of the services rendered.
Legacy Code: 4855
6 - Cardholder Dispute of a Recurring Transaction
Description: A recurring transaction the customer claims was unauthorized or attempted to cancel.
Causes because the buyer:
- Forgot about the recurring billing agreement.
- Was unaware of the subscription terms.
- Did not recognize the descriptor on their statement.
- Believes the recurring charge is fraudulent.
Or the user could have actually canceled the subscription, but you still charged them.
Prevention:
- Obtain explicit consent for recurring billing.
- Send clear reminders before each recurring charge.
- Make cancellation easy and accessible.
- Use clear and recognizable billing descriptors.
- Monitor for and address unusual account activity.
- Confirm cancellations via text or email.
Evidence:
- Proof of the buyer's authorization for recurring billing.
- Documentation of the terms of the recurring billing agreement.
- Evidence that you notified the buyer of upcoming charges.
- Record of the buyer's cancellation attempt (if applicable).
- Relevant communication records.
Legacy Code: 4841
7 - Transaction Did Not Complete
Description: Payment was deducted, but the transaction was never finalized.
Causes:
- Technical issue during transaction processing.
- Miscommunication about order status or confirmation.
- Cardholder misunderstanding of pending authorization.
- Merchant failing to fulfill order after payment.
Prevention:
- Communicate clearly with customers about order status.
- Explain authorization holds and their temporary nature.
- Promptly fulfill orders or issue refunds for cancellations.
Evidence:
- Proof of successful transaction completion.
- Documentation of order status and communication.
- Evidence of goods or services delivered or rendered.
Legacy Code: 4855
8 - Digital Goods $25 or Less
Description: Shopper claims unauthorized digital purchase due to a lack of account security.
Causes:
- Purchase involves digital goods valued at less than $25.
- Insufficient purchase controls on digital accounts.
- Unauthorized user accessing cardholder's account.
- Customer sharing account information with others.
Prevention:
- Implement strong security measures for digital accounts.
- Require strong passwords and two-factor authentication.
- Limit purchase amounts without additional authorization.
- Educate customers about digital purchase risks and security.
Evidence:
- Proof of adequate purchase controls on digital accounts.
- Documentation of security measures and customer communication.
- Evidence of unauthorized use or shared account access.
Legacy Code: 4841
9 - Credit Not Processed
Description: A refund or credit was not issued or not correctly reflected on their statement.
Causes:
- You did not issue the buyer a refund after returning an item.
- The seller failed to process a refund after a cancellation.
- The refund amount was incorrect or not applied properly.
- The buyer misunderstood the refund policy or timeline.
Prevention:
- Issue refunds promptly upon return or cancellation.
- Clearly communicate refund policies and timelines to buyers.
- Double-check refund amounts for accuracy before processing.
- Maintain detailed records of all refunds and credits issued.
Evidence:
- Documentation of the original transaction.
- Proof of return or cancellation (if applicable).
- Correspondence with the buyer regarding the refund.
- Documentation of the refund or credit transaction.
Legacy Code: 4860
10 - No-Show Hotel Charge
Description: Cardholder received a no-show fee at a hotel despite canceling their reservation. The hotel in question participated in the Mastercard Guaranteed Reservation Service.
Cause: Merchant error in processing.
Prevention:
- Clearly communicate cancellation policy and deadlines.
- Confirm cancellations in writing and provide reference numbers.
- Maintain accurate records of all reservation changes and cancellations.
- Ensure compliance with Mastercard Guaranteed Reservation Service rules.
Evidence:
- Proof of cancellation communication and confirmation.
- Documentation of reservation details and cancellation policy.
- Evidence of compliance with program rules and fee justification.
Legacy Code: 4859
4. Point-of-Interaction Errors
Notes:
- The following reason codes allow customers up to 120 days to file a chargeback:some text
- Duplication / Paid by Other Means
- ATM Disputes
- Otherwise, every other reason code gives customers up to 90 days.
1. Transaction Amount Differs
Description: The final charge amount doesn't match the initially authorized or agreed-upon sum.
Causes:
- Accidental double billing by the seller.
- Adding undisclosed fees or tips post-authorization.
- Incorrect currency conversion applied to the sale.
- Failure to provide a final receipt matching the billed amount.
Prevention:
- Obtain explicit consent for any post-authorization changes.
- Clearly display all fees before finalizing the sale.
- Double-check the billed amount matches the authorized amount.
- Ensure accurate currency conversions if applicable to the transaction.
- Provide a detailed final receipt mirroring the exact billed amount.
Evidence:
- Original transaction receipt matching the authorized amount.
- Proof of cardholder's consent for any changed amounts (if applicable).
- Documentation supporting the accuracy of the final charge amount.
- Currency conversion records, if relevant to the disputed transaction.
- Communication logs.
2. Duplication / Paid by Other Means
Description: A single purchase was charged multiple times.
Time to File a Chargeback as a Customer: 120 days
Causes:
- Merchant submitted the same batch of transactions multiple times.
- The buyer accidentally initiated the purchase multiple times.
Prevention:
- Utilize duplicate transaction detection software.
- Train staff on proper transaction processing procedures.
- Provide clear instructions to buyers during checkout.
Evidence:
- Transaction history.
- Proof of refund or cancellation.
- Communication records.
- Documentation of any system errors related to the transaction.
3. Loss, Theft, or Damages
Description and Cause: The cardholder was charged for loss, theft, or damage to the vendor's property or goods.
Prevention:
- Require a deposit for rentals or valuable items.
- Document the condition of goods before and after use.
- Have clear policies regarding loss, theft, or damage charges.
Evidence:
- Copy of the signed agreement outlining the policies.
- Photos or videos documenting the damage.
- Proof of the cost to repair or replace the item.
4. Point of Interaction Error
Description: A broad reason code indicating an error occurred at the point of sale.
Causes:
- Duplicate processing of a single purchase.
- Incorrect transaction amount charged to the cardholder.
- ATM dispensing less cash than requested.
- Late submission of a transaction by the seller.
- Dynamic Currency Conversion errors or lack of consent.
Prevention:
- Ensure accurate entry of transaction amounts.
- Maintain transaction records for verification.
- Follow proper procedures for currency conversion.
- Timely submission of transactions to the processor.
- Regular maintenance and reconciliation of point-of-sale systems.
Evidence:
- Original transaction receipt.
- Documentation supporting the correct transaction amount.
- Proof of cardholder authorization for currency conversion.
- Communication logs.
- System logs or records showing transaction details.
5. Point-of-Interaction Currency Conversion
Description: Issues with the currency conversion at the point of sale.
Causes:
- Cardholder was not informed or did not agree to Dynamic Currency Conversion (DCC).
- Currency conversion rate was inaccurate or unfair.
- Transaction currency differs from the currency transmitted to Mastercard.
Prevention:
- Clearly disclose DCC terms and conditions to buyer before processing.
- Obtain explicit consent from the shopper for DCC transactions.
- Ensure accurate and transparent currency conversion rates.
- Provide receipts in transaction and billing currencies.
Evidence:
- Proof of DCC disclosure and cardholder consent.
- Documentation of accurate currency conversion rates used.
- Transaction records showing transaction and billing currencies.
6. ATM Disputes
Description: Incorrect cash amount dispensed or multiple debits from ATM withdrawal.
Time to File a Chargeback as a Customer: 120 days
Causes:
- ATM malfunction resulting in incorrect cash disbursement.
- Technical error causing multiple debits for a single withdrawal.
- Error in entering withdrawal amount.
Prevention:
- Regular maintenance and inspection of ATMs.
- Promptly address any reported malfunctions or errors.
- Clear instructions for ATM use and transaction verification.
Evidence:
- ATM transaction logs and surveillance footage.
- Maintenance records of the ATM.
- Cardholder's account statement showing debits.
- Communication logs.
5. Additional Codes
Notes:
- All reason codes under this category allow customers up to 120 days to file a chargeback (instead of 90).
1 - 4850: Installment Billing Dispute
Description: A buyer disputes a charge from a payment plan, claiming it's inaccurate or unauthorized.
Causes:
- Unclear payment terms lead to confusion.
- The buyer is unaware of the installment schedule.
- Billing errors result in overcharges or duplicate payments.
- The buyer claims to have canceled the plan but is still billed.
Prevention:
- Clearly disclose all installment terms before agreement.
- Send payment reminders before each installment is due.
- Ensure accurate billing with clear transaction details.
- Provide an easy cancellation process with confirmation.
Evidence:
- Original installment agreement signed by the buyer.
- Transaction history showing all installment payments.
- Documentation of any communication about billing or cancellation.
- Proof of delivery or service for each installment period.
2 - 4854: Cardholder Dispute Not Classified Elsewhere (US)
Description: Cardholder disputes transaction after unsuccessful attempts to resolve with the merchant.
Causes:
- Vendor failed to resolve the shopper’s issue satisfactorily.
- Seller did not address the issue within a reasonable timeframe.
- Buyer may be making a fraudulent claim (friendly fraud).
Prevention:
- Address customer complaints and concerns.
- Respond to disputes promptly and professionally.
- Offer fair and reasonable solutions to resolve disputes.
- Document all communication.
Evidence:
- Communication logs.
- Proof of attempts to resolve the issue in good faith.
Coming to a Close
All of the reason codes above give the merchant around 45 calendar days to respond to the chargeback. The acquirer will let you know the specific evidence you’ll need to fight whatever dispute you face.
While the prevention methods above can help, you’ll need additional help from alert providers like Ethoca. It can prevent dispute requests from escalating into chargebacks.
We partner with Ethoca and other alert providers to prepare you for disputes ahead of time. Learn more about how we can help.
Sources
- [1]: Mastercard US: Chargeback guide