Chargeback and the Liability of the Payment Intermediary

Following the lockdowns and social-distancing measures adopted from March 2020 to curb the spread of COVID-19, it comes as no surprise that online shopping — already on a strong growth trajectory — became the first choice for many Brazilians.

According to a survey by Ebit/Nielsen, in partnership with Elo, in the first half of 2020 alone e-commerce revenue rose 47%, reaching R$ 38.8 billion[1].

With the growth of e-commerce, it is essential that consumers and merchants remain alert to the various forms of third-party fraud carried out online — particularly those involving so-called chargebacks.

A chargeback is the cancellation of an online purchase made with a debit or credit card, typically because the cardholder does not recognise the transaction.

In practice, however, this mechanism — designed to give consumers a safety net in the digital marketplace — often ends up harming merchants, especially in cases of third-party fraud.

The criteria credit-card operators apply to authorise the reversal of online transactions are not always transparent or rigorous: a simple phone call can be enough to cancel a purchase.

In addition, a chargeback may be requested up to 180 days after payment is completed.

In that scenario, merchants frequently learn of a chargeback only after they have already delivered the goods.

Where the merchant can prove that the cardholder did in fact make the purchase and received the product, the cancellation can be challenged directly with the credit-card operator.

In cases of genuine fraud, although the cancellation cannot be challenged administratively, it is still possible to mitigate the losses borne by the e-commerce business.

Indeed, under the prevailing case law of the São Paulo Court of Appeals (TJSP), when assessing who should bear the loss arising from a cancelled transaction, the analysis must consider (i) the integrity of the seller's and the payment intermediary's databases, including security systems to prevent the hacking of consumers' personal information for use in unrelated transactions, in an encrypted environment; and (ii) the "anti-fraud" system based on consumer profile, purchase history and other information shared by card operators and risk-analysis providers for secure payments.

On that analysis, the TJSP has held that the payment intermediary is engaged precisely to minimise fraud, such that the prior screening of the transaction with the card issuer is a risk of its business activity that cannot be passed on to the e-commerce merchant — unless there is evidence that the intermediary alerted the merchant to the risk of the transaction.

In ruling on appeal No 1079531-56.2016.8.26.0100, the 12th Private Law Chamber of the TJSP held that a contractual clause shifting the intermediary's business risk to the affiliated merchant was abusive.

Likewise, in a recent decision, the 24th Private Law Chamber of the TJSP (appeal No 1004449-53.2020.8.26.0011) held that a credit-card operator cannot disclaim liability for defective services, and that a clause allowing it to withhold proceeds of a commercial transaction on suspicion of fraud — even after the transaction has been approved by the operator's own system — is abusive.

Against this backdrop, where the e-commerce merchant offers a secure platform to its consumers and the purchase has been approved by the card operator, but is later subject to chargeback, it is possible to hold the operator liable for the losses borne by the merchant.

RAISSA SIMENES MARTINS FANTON

raissa.martins@fius.com.br

LAÍS ARRUDA MARINI

lais.marini@fius.com.br

[1] "Online sales in Brazil grow 47% in the first half, the largest increase in 20 years". By Carolina Ingizza. Available at: https://exame.com/pme/e-commerce-brasil-cresce-47-primeiro-semestre-alta-20-anos/