A customer purchased a vacation package from an online booking company for a trip in April 2020 that the company canceled in March 2020. In April 2020, the customer notified us that the company had gone out of business and not provided a refund. At the time, we determined that the transaction did not meet the definition of an unauthorized transfer under Regulation E and advised the customer to seek a refund from the company. The customer later informed us that the airline involved in the transaction offered them travel credit, which they declined. The airline eventually refunded the cost of the flight in March 2021, but the refund went to the booking company, not the customer, since the flight had been booked on the booking company’s credit card. Do the Mastercard rules require us to credit the customer, and should we forward a chargeback to Mastercard?

Apr 16, 2021

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It is likely too late to forward a chargeback to Mastercard; however, we recommend crediting your customer since you would have been required to do so under Mastercard’s rules if you had forwarded the chargeback in the required timeframe.

The transaction may not have been an “unauthorized electronic fund transfer” under Regulation E since the customer authorized the transaction, but we believe the customer was likely entitled to a chargeback under the Mastercard rules.

Mastercard’s guidance on dispute resolution management during the pandemic generally provides that a customer has a chargeback right when prepaid services such as flights and hotel reservations “are cancelled by a merchant due to government restrictions, insolvency, or other exceptional circumstances.” The guidance also states that “reasonable alternatives for future services cannot be imposed on the cardholder in lieu of a refund” unless the merchant has a right to provide such alternatives under terms and conditions that were disclosed to the cardholder at the time of purchase or are based on applicable laws or regulations.

In addition, Mastercard’s Chargeback Guide provides that in cases where travel services arranged through an online travel agency were not received and the travel agency is no longer in business, the issuer may charge back the transaction immediately after learning that the merchant has gone out of business or within 120 days of the latest anticipated delivery or performance date. Consequently, we believe your bank should have followed the procedures outlined in Mastercard’s Chargeback Guide: requiring the customer to complete a Dispute Resolution Form, submitting the chargeback to Mastercard (assuming the customer provided sufficient evidence) within 120 days of the customer’s vacation date, and providing the customer with a provisional credit.

Since it appears your chargeback rights have expired (as more than 120 days have passed since your customer’s vacation planned for April 2020) and since your customer did not receive the airline’s refund, we recommend reviewing your Mastercard contract to determine the consequences for failing to comply with the Chargeback Guide. We also recommend having the customer complete a Dispute Resolution Form for your records and crediting them for the transaction.

Additionally, we note that the Mastercard Chargeback Guide provides separate, but identical, instructions for dual message system chargebacks initiated on or before July 16, 2020, and on or after July 17, 2020.

For resources related to our guidance, please see:

Regulation E, 12 CFR 1005.2(m) (“‘Unauthorized electronic fund transfer’ means an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include an electronic fund transfer initiated: (1) By a person who was furnished the access device to the consumer’s account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized; (2) With fraudulent intent by the consumer or any person acting in concert with the consumer; or (3) By the financial institution or its employee.”)

Mastercard, Dispute Resolution Management During COVID-19, page 4 (May 1, 2020) (“Question: The cardholder prepaid for services (e.g. flight or hotel reservation) and the cardholder was notified that the merchant will not be able to provide the services. No refund has been processed. Does an issuer have chargeback rights? Answer: Yes. There is a chargeback right when services are not provided, including when they are cancelled by a merchant due to government restrictions, insolvency or other exceptional circumstances, unless the merchant has a right to provide the cardholder with reasonable alternatives based on the terms and conditions properly disclosed to the cardholder at the time purchase, or based on applicable government legislation or regulation. For example, there may not be a chargeback right, if the merchant is required by the government to impose a voucher or other reasonable alternative on the cardholder in lieu of a refund.”)

Mastercard, Dispute Resolution Management During COVID-19, page 5 (May 1, 2020) (“Question: The merchant has cancelled services and offered the cardholder a reasonable alternative for future service. The cardholder declines this reasonable alternative but the merchant refuses to process a refund. Does an issuer have chargeback rights? Answer: Yes. Reasonable alternatives for future services cannot be imposed on the cardholder in lieu of a refund, unless the merchant has a right to provide the cardholder with such reasonable alternatives based on the terms and conditions properly disclosed to the cardholder at the of the purchase, or based on applicable government legislation or regulations.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or Before 16 July 2020, page 63 (February 23, 2021) (“Chargeback Condition. . . . Travel services arranged through an online travel agency or tour operator were not received and the travel agency or tour operator is no longer in business.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or After 17 July 2020, page 235 (Chargeback Condition. . . . Travel services arranged through an online travel agency or tour operator were not received and the travel agency or tour operator is no longer in business.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or Before 16 July 2020, pages 63 (February 23, 2021) (“Time Frame . . . In cases involving delayed delivery of goods or services and the delivery or performance date was specified by the merchant and the latest anticipated delivery or performance date was specified by the merchant has passed: within 120-calendar days of the latest anticipated delivery or performance date specified by the merchant. However, the issuer may charge back the transaction immediately (and not wait until the latest anticipated delivery or performance date has passed) upon learning the merchant will not provide the goods or services because, for example, for the merchant is no longer in business.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or After 17 July 2020, page 236 (February 23, 2021) (“Time Frame . . . In cases involving delayed delivery of goods or services and the delivery or performance date was specified by the merchant and the latest anticipated delivery or performance date was specified by the merchant has passed: within 120-calendar days of the latest anticipated delivery or performance date specified by the merchant. However, the issuer may charge back the transaction immediately (and not wait until the latest anticipated delivery or performance date has passed) upon learning the merchant will not provide the goods or services because, for example, for the merchant is no longer in business.”)

Mastercard Chargeback Guide, General Information, page 33 (February 23, 2021) (“An issuer is limited to one chargeback for each presented transaction amount within the time frame applicable for the chargeback reason code. The transaction amount may be charged back one time by the issuer, either as a full amount, a partial amount, or multiple partial amounts not to exceed the original clearing message amount.”)

Mastercard Chargeback Guide, General Information, page 33 (February 23, 2021) (“The issuer, acquirer, merchant, or cardholder must not retain funds, goods, and/or services twice for the same transaction. Issuers and acquirers are responsible to research and identify refunds prior to each chargeback processing cycle. Issues of this nature must be resolved properly during the chargeback and second presentment cycles and within the required time frames. . . . Examples include but are not limited to: When an issuer has billed a transaction to its cardholder’s account for payment and then chooses to exercise a chargeback right, the issuer must credit the cardholder’s account for the amount of the chargeback. An issuer must not allow a cardholder to be credited twice because of a chargeback processed by the issuer and a refund processed by the merchant.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or Before 16 July 2020, page 65 (“For disputes involving a transaction performed by an online travel agency or tour operator that is no longer in business at the time of the chargeback: an email, letter, or completed Dispute Resolution Form-Cardholder Dispute Chargeback (Form 1221) provided by the individual or corporate entity requesting the travel arrangements from the online travel agency or tour operator that includes all of the following: [1] A description of the complaint in sufficient detail to enable all parties to understand the dispute. This means that the cardholder email, letter, message or completed Dispute Resolution Form-Cardholder Dispute Chargeback (Form 1221) must document how each of the Chargeback Conditions was met. [2] A reasonably specific description of the goods/services purchased.”)

Mastercard Chargeback Guide, Dual Message System Chargebacks Initiated On or After 17 July 2020, page 237 (“For disputes involving a transaction performed by an online travel agency or tour operator that is no longer in business at the time of the chargeback: an email, letter, or completed Dispute Resolution Form-Cardholder Dispute Chargeback (Form 1221) provided by the individual or corporate entity requesting the travel arrangements from the online travel agency or tour operator that includes all of the following: [1] A description of the complaint in sufficient detail to enable all parties to understand the dispute. This means that the cardholder email, letter, message or completed Dispute Resolution Form-Cardholder Dispute Chargeback (Form 1221) must document how each of the Chargeback Conditions was met. [2] A reasonably specific description of the goods/services purchased.”)