Chargebacks: The Scourge of the Travel Advisor Business

The age-old issue of chargebacks has raised its head again.

The exposure of travel advisors to chargebacks has its source in several related features of how sales occur. One is certainly the imbalance in economic power between suppliers and travel advisors. Contract terms are generally imposed rather than negotiated, and they favor suppliers any time a dispute arises with a customer. The suppliers’ power is manifested not only through their individual terms of dealing but also through the collective power of ARC which manages the Agent Reporting Agreement and related enforcement mechanisms. There are also laws and regulations designed to protect consumers using credit cards from various problems. Credit card fraud is rampant.

None of that is to say that the airlines are the bad guys here or that the deck is unfairly stacked against advisors, though there may be situations in which the “protect the customer” idea overwhelms everything else and creates unfairness for retailers. In the end, the system based on the massive use of credit cards has many advantages and isn’t likely to change any time soon. It is therefore important for advisors to manage the process for maximum protection of their businesses without, hopefully, endangering client relationships.

How then can a travel advisor reduce her exposure to chargebacks? The information received by TravelMarketReport indicates three main areas of concern:

• The customer denies having authorized the charge;
• True fraud scenarios in which the customer’s credit card information has been compromised and is used to make purchases;
• Clients claim they did not get what they paid for during the trip and initiate a chargeback after travel has occurred. These fall into two main categories:
• Trip features were not delivered, and
• Quality concerns.

I will consider each of these separately and make some suggestions that may help advisors prevent or fend off chargebacks. Be aware, however, that there are no panaceas for this; the prevailing culture among most suppliers is that the “customer is always right.” Since the supplier doesn’t end up with the loss in most cases, they can be indifferent to the impact of chargebacks on advisors.

1. First and Foremost – ARC Industry Agents Handbook
The ARC Industry Agents Handbook is the mother lode of information on avoiding and managing chargebacks. 

Section 6: Payment Card Acceptance Procedures, Chargeback Management Procedures, and Best Practices covers many critical details of this subject, not least of which is “best practices for card acceptance and the associated risk of fraud, and for chargeback management.”

I strongly urge every advisor to review this information, discuss it with your associated ICs and employees who may be involved in accepting credit card charges for travel services, and scrupulously follow the guidance. As stated above, there are no panaceas, but taking those steps, perhaps including periodic reviews if chargebacks have occurred, is an essential step in reducing these annoying and costly problems.

2. The customer denies having authorized the charge.
There are a multitude of scenarios that can lead to this situation. One that I have seen often is the claim that the parties have separated/divorced and the, for example only, “wife made the charge on my card without my knowledge.” Or “my child used my card without my permission.” Often, no one wants to engage on these, so unless you have compelling information that the representation is false, this case is likely a loser.

The best defense is to know your clients. This requires some finesse but if, for example, you are dealing with the wife using a credit card bearing the name of the husband, or vice versa, you should make subtle inquiries or explore the status of the relationship with questions that may expose an otherwise hidden problem.

The second line of defense, most important, is to KEEP RECORDS!

By KEEP RECORDS, I mean note-taking on every interaction with the client. There are many efficient ways to do this. Writing out notes is obviously one way but consider dictating into a software program (there are many options) and, after reviewing the notes for accuracy, securely retaining the files until at least the risk of chargebacks has passed. This dictation can be accomplished in real-time during discussions with the client using standard feedback techniques: “Ms. Jones, to be sure I have this right,” then repeat what you have heard.

I am not suggesting that you record your conversations with clients unless you have advised them you are doing so and obtained their consent. The recording I am describing relates only to your side of a conversation.

You will have to make a judgment when to do this, but generally this form of “journaling” is a sound business practice for every client interaction. Once the habit develops, it will become automatic and produce records that may be useful in many different situations.

Be aware that making false statements to prevent paying an authorized charge may constitute fraud. If the amount is significant and your information is solid, you should consult your attorney about sending a letter to the client making clear that your information indicates the charge was authorized and that the chargeback should be withdrawn. You will, of course, lose the client, but in these cases, you are better off. People who will cheat you once will cheat you again.

Another tactic is to always insist on speaking directly with the person whose name is on the card. You can’t always be sure who is on the line with you, of course, but at least in some cases, people will be reluctant to misrepresent their identity. If possible, get a statement that the cardholder approves the charge and KEEP RECORDS.

An additional technique to help identify the person with whom you’re speaking is to suggest a Zoom-type call where you can observe the person and take screenshots. In the aftermath of the pandemic, more people than we realize have installed Zoom or similar software on their computers. According to Wikipedia, Zoom was downloaded 500 million times worldwide in 2020, and it’s just one option.

Every small step you can take toward verification of the transaction will reduce the likelihood of a chargeback based on “not authorized” claims.

3. True fraud scenarios in which the customer’s credit card information has been compromised and is used to make purchases.
If you cannot get the putative purchaser to come into your office, if you have one, this one is particularly difficult. At the risk of repeating myself, the best defense is to know your clients. If you are dealing with a stranger, someone about whom you know nothing, the risk of someone using a stolen card is significantly increased. Airlines are unlikely to challenge such persons at the airport even if they are advised in advance that a probable fraudulent purchase has occurred.  Historically they have seen this as “not their problem.” Doing business with a stranger, especially one who is in a hurry to get a ticket and travel right away, is dangerous.

If you are dealing with a stranger with whom personal contact is impractical, the next best defense is to be a good sleuth. Before processing the card information, use the techniques discussed in the Industry Agents Handbook and search the Internet to check addresses and phone numbers. Even better, contact the credit card company to inquire whether the number has been reported as stolen. I am not aware of any reliable online sources, other than credit card issuers, to verify whether a particular number has been stolen.

Develop a way of asking for verifiable information about such things as current employment. The Internet may display reliable information about current employment if you know where to look.

Asking for references may be helpful, but clever thieves may have someone to pose as a reference. Independent verification is essential. Ask if the buyer has ever used another travel advisor and try to get the name and contact information that can be used to verify the truth of what you’re being told.

If after all that you are in doubt, don’t.

4. Clients claim that promised trip features were not delivered.
This can happen to anyone, including clients with whom you’ve done business for many years. The first key here is to be clear with the client as to exactly what trip features are included and which are optional. Put it in writing and get the client’s statement that he has read it. And of course. KEEP RECORDS!

Second, if a non-delivery claim is behind a chargeback, such claims are usually verifiable. The supplier, for example, can usually confirm whether some promised feature of the trip was omitted for some reason. Note, however, that in many cases such omissions are covered in Contracts of Carriage and Terms & Conditions so that the client is presumed to have read and understood the risk that, for example, bad weather prevented a particular land excursion or even an entire port visit. If the time of travel suggests a possible trip omission due to unstable weather, for example, have a discussion with the client at the time of purchase about the contingencies.

Consider reviewing the Terms & Conditions with the client to secure a statement that she is aware of the contingencies. Managing client awareness and expectations can go a long way here. And of course. KEEP RECORDS!

5. Clients claim that the travel experience was not consistent with the quality they had expected.
In some ways, this is the most difficult scenario, The possibilities for mischief by clients are infinite. My room was too cold, too hot, too small; the waves were too rough; my flight was delayed, and we weren’t given any concessions; the seats on the bus were too small; the tour guide was difficult. You know.

There are ways to manage the “quality problem” to reduce your risks. They take time and work. Anticipating and defending against quality chargebacks requires detailed candid discussions of what the travel product entails and KEEPING RECORDS of such discussions. Understanding your client’s expectations and sensitivities is crucial here.

Reading supplier-produced brochures full of glamorous photos and exuberant descriptions can elevate client expectations to unrealistic heights. And the relatively new science of Behavioral Economics tells us that people often hear what they want to hear. While you don’t want to deter a potential purchase, you increase the risk of quality-based chargebacks if you’re not completely honest and direct with the client about what the travel product entails and the potential contingencies. A certain amount of variation in the delivery of travel services is unavoidable so you want to prime your clients, subtly, to understand that inevitability and to accept it.

Finally, I reiterate that everyone in your business who is involved in the acceptance of credit card charges must master the relevant material in the ARC Industry Agents Handbook.