American Express Chargeback Reason Code FR2: Fraud Full Recourse Program

What is American Express Chargeback Reason Code FR2?

Issuers, including American Express, have different fraud monitoring programs to deter fraudulent transactions and promote customer trust. The American Express chargeback reason code FR2 indicates disputed transactions where the merchant is listed in the fraud full recourse program. It falls under the “inquiry/miscellaneous” category and often originates from cardholder complaints.

American Express will use other reason codes for fraud-related disputes. However, it reserves the FR2 reason code for merchants on its Fraud Full Recourse Program. The latter allows American Express to deduct the chargeback without prior notice or inquiry requests.

Being listed under the Fraud Full Recourse Program has limitations on how you can dispute a chargeback. You cannot use compelling evidence to plead your case and prove that the cardholder benefited from the transaction. Compelling pieces of evidence include the following:

• Photos, like scanned boarding passes or goods delivery
• Signatures
• Email threads
• Other pieces of evidence that can help build your case

The absence of compelling evidence limits you to the transaction details when disputing chargebacks under this reason code. Hence, you must work on your business operations to reduce or eliminate fraud-related chargebacks.

The Fraud Full Recourse Program

American Express marks merchants that accept an excessive number of fraudulent transactions. That can happen due to outdated fraud-detection tools or bypassing security features. Whichever is the case, an excessive number of fraudulent transactions points to the merchant’s complacency.

Fraudulent transactions can occur in the following ways:

• The POS system processed a chip card payment without PIN validation for EMV-chip-PIN cards.
• The merchant keyed the transaction manually to bypass EMV security checks.
• The card processor transmitted partial chip data to American Express
• The merchant uses non-EMV-enabled payment terminals

Cardholder disputes cause American Express to investigate your security protocols. It will add any merchant found wanting in these aspects when they reach an excessive number of fraudulent transactions.

The Fraud Full Recourse Program allows American Express to skip the merchant inquiry step. It serves as an identification service when American Express investigates fraud-related customer complaints.

You can leave the program by reducing confirmed fraudulent transactions. The ratio of cases in a specific time frame must be below the threshold. We’ll list a few American Express protocols to deter fraudulent transactions in your business.

Why Did It happen?

Chargebacks under this reason code occur when cardholders make fraud-related complaints, and American Express has you listed on the Fraud Full Recourse Program. Merchants outside the program will receive inquiry requests, and the chargeback will be listed on other fraud-related reason codes.

The following are the primary causes of chargebacks under the reason code FR2:

• True fraud: The cardholder denied authorizing a transaction, alluding to fraudulent card use. Stolen and lost cards are often used for fraudulent payments. Similarly, fraudsters can clone original cards and use them to make purchases the cardholder does not authorize.

True fraud can also occur when fraudsters intercept card deliveries and use the cards. The liability shifts to you because your payment systems or terminals bypassed the security checks. Otherwise, American Express will take the liability, and your business will have no chargebacks.

• Friendly fraud:  A cardholder might see a charge on their account statement that they do not recall authorizing. Chargeback claims might follow, resulting in friendly fraud. While American Express will do its due diligence, your presence on the Fraud Full Recourse Program is disadvantageous.

You can also receive this chargeback in error. That offers a window to dispute it and receive a refund. Besides that, your options are limited if you remain in the Fraud Full Recourse Program.

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How  to Fight the American Express Chargeback Reason Code FR2: Fraud Full Recourse Program

While you won’t receive inquiry requests, you can still dispute this chargeback claim. The primary limitation is the use of compelling evidence. In addition, prepare and send your reply within 20 days of receiving the chargeback.

With that in perspective, here’s how you should approach disputing chargebacks under the reason code FR2:

• If you are not on the Fraud Full Recourse Program: Submit evidence that you are not on the Fraud Full Recourse Program at the transaction time. Your current status will not matter, even if you are no longer part of the program.
• If the transaction does not qualify as fraud: Submit proof that you took adequate steps to prevent a fraudulent transaction. That means using EMV-enabled terminals, processing chip card transactions with PIN validation, or transmitting the complete chip data to American Express.

Adhering to processing standards shifts the liability to American Express. Hence, you will receive a refund if the issuer confirms your claims.

• If you processed a refund: Submit proof of the transaction to refund the cardholder. Promises of a refund will not hold in this case. The credit transaction must occur, and the transaction date and amount must be available for submission.

You cannot use photos or email discussions between you and the customer in this case. American Express only accepts transaction data.

How to Prevent the American Express Chargeback Reason Code FR2: Fraud Full Recourse Program

The Fraud Full Recourse Program can result in outright blocklisting, where you cannot transact with issuers. That happens when fraudulent transactions rise above specific thresholds. Hence, you must take active steps to prevent further fraudulent transactions.

American Express will compare the number of fraudulent transactions over a given period. The lower the number, the more likely you are to exit the program.

Here are a few ways you can prevent fraudulent transactions that will cause chargebacks under reason code FR2:

• Process credits and refunds within seven days of receiving the notification or complaint.
• State the timeframes for your credits or refunds in your terms of service (refund policy).
• Ensure cardholders are aware of your refund policy before authorizing a transaction. Place the policy in a conspicuous spot and obtain the cardholder’s approval.
• Upgrade your payment terminals to the EMV-enabled variants.
• Use fraud mitigation tools in your business operations.
• Observe the behavior of physical customers who make large transactions.
• Obtain adequate authorization before processing a transaction.
• Use simple billing descriptors.
• Provide prompt customer service and resolve complaints quickly.

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