Visa Chargeback Reason Code 10.5: Visa Fraud Monitoring Program

What is Visa Chargeback Reason Code 10.5?

The chargeback reason code 10.5 is used for chargebacks where an issuer disputes a transaction. It is not a typical chargeback situation where a cardholder claims not to have authorized a payment. Then, the issuer will work on those claims and charge back the amount paid.

This reason code falls under the Visa Fraud Monitoring Program (VFMP), a system to monitor fraudulent transactions. The system incentivizes merchants to keep a tight leash on any excessively high rate of fraudulent payments. Failure to heed the warnings will cause chargebacks to occur under this code.

Visa has an acceptable rate of fraudulent charges where it bears the liability. It tracks fraud-based chargebacks and the TC40 data to determine if you are within the thresholds. You shouldn’t experience chargebacks under this code if you are within the thresholds.

Besides the chargebacks, you will be fined as long as you remain in the VFMP, and the amount increases the longer you stay. Remaining for too long in either tier of the program (twelve months in the standard or excessive tier) can lead to an outright cut-off from processing merchant payments.

Chargebacks under this reason code will occur whether you are at the standard or excessive level of the VFMP. Hence, you must work towards getting your business off the list as soon as possible. There is little in the cards to fight this chargeback, but we’ll show you the best approach.

We have a few ways to fight it, but the ultimate and best approach is to prevent the chargeback. For that, we also have a few suggestions.

Why Did It Happen?

This chargeback occurs when an issuer receives a directive from Visa to file the chargeback for a transaction that has appeared in the VFMP. The cardholder rarely initiates it after a purchase. Nonetheless, it remains a valid concern as it affects your standing with Visa.

The VFMP has two thresholds that can cause this chargeback in a transaction. They are as follows:

• The standard threshold has a fraud rate of 0.9%
• The excessive threshold, with a fraud rate of over 1.8%,

Visa does not use the number of transactions to calculate the fraud rate. Instead, it compares the total dollar amount of legitimate transactions to the fraudulent ones.

You will receive this chargeback only after receiving an early warning when the fraud rate was 0.65% with at least $50,000. Getting to the standard threshold puts you in the program, opening your transactions up for chargebacks with code 10.5.

This chargeback will only occur if the issuer or cardholder has not disputed it under another reason code. Hence, Visa will take it up automatically or inform the issuer.

Actual and Friendly Fraud

The questionable transactions that led to this chargeback may be actual fraud. In this case, Visa will flag it and notify the issuer to process the chargeback. Visa can also directly file a chargeback when fraud-related disputes appear in your transactions.

You won’t receive any benefit of the doubt once you are in the VFMP. As a result, friendly fraud cases may slip through and cause a chargeback. That leaves you with little to fight it with.

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How to Fight Visa Chargeback Reason Code 10.5: Visa Fraud Monitoring Program

Visa allows merchants 30 days to respond to this chargeback, while issuers have 120 days to file it. You can dispute it if the issuer takes over 120 days to file it. That is one way, but things rarely turn out that way in our experience.

The other ways you can fight this chargeback include the following:

• If you noticed an error and corrected it with a refund: Provide documentation that proves you’ve already processed a refund for the cardholder. The amount and date of the refund transaction must be included in the document.
• If you have already accepted a dispute for the same transaction: The cardholder may have already disputed the transaction, and a chargeback occurred under another reason code. You are not liable for another chargeback under reason code 10.5 if that happens. Provide details of the previous dispute to invalidate the second one.

You can provide details of the previous chargeback and the reason code in the message. That should invalidate the new charge and initiate a refund.

• The cardholder has withdrawn the dispute: This approach only applies if the cardholder initiated the dispute that caused the charge. Provide documentation to show that the cardholder no longer wishes to dispute the transaction. An email or a letter, including a chat, can be proof of the cardholder’s withdrawal of the dispute.

We wish we had more ways to fight this chargeback, but there aren't any anymore. You may have to bear the cost if your case doesn’t fall into the above categories.

The best thing to do is to find ways to leave the Visa Fraud Monitoring Program. That will ensure you don’t receive chargebacks under this code.

How to Prevent Visa Chargeback Reason Code 10.5: Visa Fraud Monitoring Program

The primary prevention of this chargeback is avoiding fraudulent transactions that will place you in the VFMP. Here are a few things you can do to be on the safe side:

• Be proactive about avoiding enrollment in the fraud monitoring program. That means monitoring your fraud-to-legitimate transaction ratio closely.
• Request CVV and AVS matches for transactions before processing them.
• Use modern anti-fraud or fraud detection tools that use machine learning to identify potential fraudulent transactions. Some assign risk scores and help you block or review the payment.
• Ensure you have adequate authorization before processing any payment. Do this for all your transactions, no matter how small.

Another way of preventing this chargeback if you are already in the fraud monitoring program is to leave it. You must stay below the standard fraud threshold of 0.9% for three months in a row.

Other things Visa may require include:

• The anti-fraud tools you use
• A fraud remedial plan you’ve worked out with your acquirer

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