Mark Pestronk
Mark Pestronk

Q: We are a small tour operator that suffered major losses last year when dozens of clients canceled their tours and successfully charged back their credit card payments, even though we offered them future travel credits. We are redesigning our terms and conditions to try to make sure that we can defend against chargebacks. First, is it really possible to defend against them all? Second, if so, what do we have to do to accomplish that result?

A: Some of my travel industry clients successfully fought all Covid-related chargebacks, so I know that it is possible to do so. These clients included not only tour operators but also consolidators, villa rental companies and even retailers that act as the credit card merchant in some transactions.

On the other hand, probably the majority of my clients did lose some or even most chargebacks. So, I tried to analyze the differences between success and failure, and here is what I found.

There are three parts to a successful chargeback defense program: first, the wording of terms and conditions themselves; second, the steps in the sign-up process; and third, the wording of the chargeback defense submitted to the card issuer.

Your terms and conditions, which are better called a "participant's agreement" to signify that they form a contract, must be crystal clear and leave no room for interpretation. For example, you could say "Your payments are nonrefundable" or "If we cancel or postpone the tour, we will offer you a future tour at no additional charge, but we will not provide refunds."

The steps in the sign-up process are extremely important to the card companies. It is essential that: a) you bring the agreement to the client's attention before he signs or clicks "I agree," b) you provide proof that the client agreed and c) you reference the refund and cancellation clause just before the signature of the "I agree" click.

An ideal signature line for both online and offline (i.e., paper) agreements would be, "I confirm I have read the Participant Agreement in its entirety and by submitting payment I agree to all its terms and conditions, including all of the terms and condition in the refund and cancellation sections." Then, for online sign-ups, the words that I placed in italics would be linked to the agreement itself.

Finally, the wording of the chargeback defense is very important. You need to write and upload a formal business letter (not an email or an unsigned note) that is structured as follows:

  • The facts of the case, stated very briefly
  • A document proving cardholder authorization of the charge
  • A copy of the agreement stating that payments are nonrefundable (or whatever the restrictions are)
  • Proof of the cardholder's agreement to the terms by a signature or check box
  • Proof that the refund and cancellation clauses were brought to the cardholder's attention just before acceptance.

Be sure to submit your letter by the deadline assigned by the credit card processor in the chargeback notice. 

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