Anything over 30 days is a violation of Visa and MasterCard rules. The processor may look the other way for merchants who have small ticket amounts (I’ve seen annual subscriptions go through quickly and easily that were under $30) because the chargeback risk is pretty low but that will be their butt if they get caught. Also any transaction that is disputed that is an advanced sale (i.e. over 30 days before delivery or completion of delivery) is an automatic loss for the merchant.
Stymiee… you keep saying that anything over 30 days is a violation of Visa & MasterCard rules, but what are you basing this on?
I am not trying to be argumentative here but let’s talk specifics here because I think that there is some confusion on what is actual a reg and what is a merchant processor’s internal policy or their sponsoring bank’s policies may be.
The company you work for may have an internal underwriting policy that prohibits it - but that is a totally separate issue from the actual operating guidelines from the Card Associations.
It’s not our company policy, it’s Visa and MasterCard’s policy. Look it up. It’s there. If you’ve sent enough apps to different acquirers you’ll consistantly see that they’ll flag this with certain accounts. Furniture stores happen to be a great example. They like to charge a customer immediately for their sale but typically don’t deliver for up to eight weeks. That’s plenty of time for a customer to change their mind. But the furniture has already been ordered. Now the merchant is out their cash and have blown a ton of money on a product they no longer have sold. If they can’t cover the cost of the furniture they are out of business. This means they may not be able to cover their debts including credit card processing fees (and future chargebacks) included. No acquirer will expose themselves to this kind of risk.
Now if an acquirer (not likely) or MSP/ISO chooses to ignore this, that’s their call. Anyone who doesn’t inform their merchant of this rule and sets up their account knowing full well that they will be violating it is doing a terrible misdeed to their client.
I don’t know who you process through but we have established relationships with several large acquirerers and advanced sales is a huge no-no for all of them.
Off Topic:
Off to play hockey now! 
Stymiee, our company is a registered ISO/MSP merchant processor and we have been in the payment processing business since 1998. Thus, we have the discretion to set the majority of our own underwriting policies within the parameters of our sponsoring bank.
I completely understand the risk implications of what you are describing and I’ve seen that situation happen first hand. I’ve also seen just about every other possible risk issue under the sun - from bust-out merchants to companies that go out of business and default on their obligations, creating a loss situation.
So I’m not questioning WHY most merchant processors refuse to underwrite those accounts. I’m asking you to specifically point out where in the Visa/MC regulations it states that an e-commerce subscription over 30 days is prohibited.
The scenario you are describing with respect to tangible merchandise being shipped is NOT the same scenario as an online subscription service. If you want, you can read through Section 5 of the Visa Operating Guidelines published in May '04 for further clarification.
And … enjoy your hockey game in the mean time. Go get 'em! 
It won’t say ecommerce specifically. It’s a rule accross the board. And I thought of a better example then the furniture store while drivng to hockey (ain’t that the way it always is?). Fitness Gyms. You can sign up for a years membership. They’ll let you pay for one years membership in cash. Check, too. But not by credit card. They’ll bill you monthly because they know they can’t charge a full year.
6-1 victory! On to round two of the playoffs…
One more radom thought before I make my 74 mile drive home (yes, I drive 74 miles each way just to play hockey). Regardless of advanced sale policies, there is an easy fix: have a customer-centric refund policy. If someone has used part of the service and wants their money back, give them a pro-rated refund. If they want it all back and insist on it, do it. It’s not worth the chargeback anyway.
I agree 100% with the customer-centric refund policy - it will help prevent many chargebacks. It isn’t worth arguing or being stubborn if a customer is threatening a chargeback. So that is most definitely great advice.
In addition, while you would be credit returning them to avoid the chargeback - you could subsequently send them a bill with the balance owed. If they fail to pay it, you could then send their account to collections.
Regarding the other issue - there are fitness clubs that still do take annual payments. But you won’t find many of them any more since banks have been burned too many times on fitness clubs that go out of business after delivering only a portion of a year’s membership.
But again - this is a reflection of the high risk that exists on extended subscriptions… it isn’t a reflection on Visa/MasterCard specifically “banning” such transactions in the first place.
My suggestion is this - ask whoever told you that it is against Visa/MasterCard regs and ask them where it specifically states that. For that matter, ask them for the page number/section - either in the Visa operating regs or in any “Letter to Acquirers” from them… as I think that they are misinterpreting it.
BTW - 74 miles… that is quite a trek! Hope you don’t have to deal with much traffic on that journey!
So in essensce the $65 three-year subscription I have to National Geographic is in violation of Visa and MasterCard rules?
There are plenty of examples of subscriptions over 30 days and they are NOT in violation of Visa/MC rules.
Magazine subscriptions are actually a great example of that as edprush points out here. There are also some very large Web hosting companies that accept annual payments for their hosting services.
And for that matter - domain registrations are done for one or more years at a time. In fact, Network Solution and most other registrars now offer 5-10 year domain registrations and have been for some time now.
Ahh, home…and straight to SPF. 
The only thing I would point out about the examples of companies accepting advacned payment via credit card is that doing it and getting away with it doesn’t mean it is acceptable. Lots of people do it everyday, I know a ton of our merchants do, but it is still against the rules. It generally goes unnoticed, as it should, until the merchant starts having issues with their account, typically chargebacks. Once the acquirer realizes the chargebacks are the result of advanced sales then the problems start.
The person(s) who told me about the advanced sales rule are a dozen acquirers or so that we work with.
Yes. But everyone’s getting too literal here. I bet if you contacted National Geographic and asked for a refund, you’d get it (it would never get to chargeback status). It’s just part of any “real” companie’s customer service policy. They know if you really want to get your money back bad enough you will so there’s no use resisting. Plus they know that they deliver an excellent product and the odds of someone really wanting their money back is slim. They offer the three year subscription because it gives a sense of commitment from the subscriber. Even if they start to lose interest in their magazine after two years they’ll comtinue to receive it because they asked for it. If there wasn’t such a long subscription, the user might stop buying their magazine after the two years and one year’s worth of revenue is lost.
If you don’t want chargebacks, make sure your communication skills and customer service are on point. Managing a hotel, I cut chargebacks down from about 2 per month to about 1 every 4 months, just by being extremely prompt and professional when handling any complaints I received. I’m sure that chargebacks over the internet are a different story, but unless someone is really bent on defrauding you, they will often contact you before going to their credit card people. That’s an easy opportunity to defuse the chargeback (and if you can really fix their problem, you often end up with a very loyal customer)
Excellent post. Customer Service is the enemy of chargebacks.
I see the definite advantage of allowing refunds before the customer calls the credit card company and requests a chargeback. But I, only as a consumer, have not had success at this. Regarding the hotels, I have paid for a reservation which I didn’t cancel in time so my credit card was charged. I called both the hotel and my credit card company and they wouldn’t give me credit. I understand that it was my mistake so I didn’t argue too much. So does that mean just because the “terms” of my transaction with the hotel stated “credit card will be charged unless we (hotel) are contacted more than 24 hours before check-in” the charges are valid? If that is the case can a person who runs a subscription based service could say, “No refunds after 30 days” and therefore would be safe from chargebacks?
Thanks.
A lot of it depends on the exact situation at hand. The rules vary based on the type of card, type of merchant and specific scenario.
There is literally an entire Dispute Regulations guide that is about 1 1/2 inches thick that covers all of the different situations that can exist on a chargeback.
So it isn’t something where there is “one answer” that fits all situations.
Also… to put to bed the issue, for once and all, regarding the >30 days issue, I was in touch with Visa Member Services and they re-iterated what I have been saying on this topic.
I specifically confirmed again with them this morning that it is NOT in violation of Card Association rules to process a recurring transaction for a timetable > 30 days.
In fact, there is NO specified maximum time interval. Whether it is 6 months, 1 year, 5 years or even 20 years - and this is paraphrased directly from Visa’s response to me.
Hopefully this will clarify on the above topic as I think it was a cause of some confusion here.
The one caveat to keep in mind, of course, is that extended recurring transaction intervals always pose a higher degree of risk not only to a merchant processor who is willing to underwrite it but also to you as a merchant.
And even with the Card Associations allowing these types of transactions, you should still make sure that you are approved for it by any merchant provider that you work with prior to running these types of sales.
I sell intangible products and anything over $50, I send a registered letter with their license information via snailmail.
PayPal for one accepts this as proof of delivery and it only costs a few dollars.
Worth it if you are suceptible to lots of fraud.
Just an idea for the rest of you.
But even though you have proof of delivery it sounds like the customer can request a chargeback (and receive one) quite easily with intangible products if they just decide they don’t want it.
It all comes down to what reason code is used.
One thing that I’ve seen some e-download merchants do is offer a limited free trial of their software. Upon expiration, it can be purchased and unlocked.
This is one method that helps to reduce chargebacks due to a customer being displeased with the quality of the product/service or feeling that it wasn’t fulfilled “as promised/represented.”
But what prevents the dishonest customer from requesting a chargeback AFTER they pay for the software’s unlock code? Will they be able to get the refund/chargeback by contacting their credit card company?
Not completely true, as I purchased a downloadable software program from online about three months ago, and after downloading it decided that I didn’t like it. I contacted capital one and told them I had changed my mind about the purchase, but the company had a “No Refund” policy, they sent me a letter in the mail which I signed, and it took two statement periods, but they credited my credit card with the amount of the purchase. That was a case of “I changed my mind, I don’t want to pay” and they still accepted, AND refunded my card.
Also I know that these rules vary from state to state, for example in the state of wisconsin in the united states, you have a 3 day “grace period” if you will, that you can change you mind about ANY purcahse and reguardless of the companies postion, or policys they MUST refund your money. My brother did this on a brand new truck, they went to court, and he stated that he changed his mind after thinking it over more, and the court ordered the dealer to repo the truck and return the money to the bank. In some cases this even works on loan contracts. However, most people and even a lot of business don’t know about this law.
If your doing business online with someone from for example wisconsin, you may have to refund them the money, I’m not sure how this law applies to internet sales. If youre going to be selling anything in this day and age, you have to be prepared to take a few losses too. If your products/services are good enough the benifits should outway the losses.