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If a credit card is used to pay for travel services, the cardholder has the right to a refund via the credit card issuer for travel services not provided. These are called chargeback rights.

Customer complaints about chargeback refusals are determined by the Australian Financial Complaints Authority (AFCA).

In this article we examine the chargeback process and an AFCA Determination upon a customer complaint where a chargeback was refused for a holiday package.

The chargeback process

This outline is from AFCA’s Fact Sheet on Chargebacks.

  • A chargeback request is valid where the customer paid for a service, but the service was not provided, such as when a flight is cancelled by an airline. A chargeback request is not valid where a customer changes their mind and decides not to use the service (by cancelling or not arriving).
  • AFCA recommends that customers take these steps where a service is not provided:
    1. Contact the merchant. If the merchant cancels, ask if they offer a refund or a reasonable alternative, such as a credit voucher or a rescheduled booking?
    2. Contact the travel insurer to see if the travel insurance policy provides cover for the cancellation of the service.
    3. After steps (1) and (2) have been taken, contact the bank (the credit card issuer) and make a chargeback request. Time limits / deadlines apply to step (3).
  • When a customer makes a chargeback request, the bank needs to decide if there is a valid chargeback right under the chargeback rules of the credit card scheme.
  • These two ‘reason codes’ in the Visa credit card scheme rules are relevant to chargebacks for travel services:

    Reason Code 13.1 - Merchandise/Services Not Received

    Reason Code 13.3 – Not as Described or Defective Merchandise/Services
  • If the customer’s bank decides the customer has a valid chargeback right, it makes a chargeback request upon the merchant’s bank. If the merchant’s bank accepts the request, it debits the merchant’s account and remits the amount to the customer’s bank to make the refund. If the two banks disagree, the credit card scheme will decide.
  • If the customer’s bank decides the customer does not have a valid chargeback right, the customer can lodge a complaint to AFCA to determine whether the bank was right to refuse the chargeback request.

AFCA Determination No 12-00-1049304 (chargeback for a holiday package)

In Determination 12-00-1049304 (31 October 2024) AFCA considered a customer’s complaint after the National Australia Bank’s refused a chargeback request for the cost of a holiday package.

In 2023, the cardholder booked an overseas holiday package with an Australian travel agency which made all the travel arrangements. The holiday package included an overseas tour, flight tickets with an international airline and a cruise package with a cruise line company.

The cardholder paid a total of $47,339 for the holiday package using their Visa credit card issued by the National Australia Bank.

The cardholder fully utilised the travel arrangements. On their return, the cardholder claimed a full chargeback for the amount paid, because they were unhappy with the holiday because they did not get what they paid for, for these reasons:

  • The service provided on the flights was well below the standard of a business class flight. A service complaint was lodged with the airline (but no refund request was made).
  • Two port stops listed on the cruise itinerary were cancelled (due to conflict in the Middle East) 24 hours before the cruise, and no option was given to cancel the whole cruise itinerary as a result.
  • The time at sea was 11 days instead of 4 days, and the accommodation provided on the tour were not 4-star hotels as promised in the itinerary; instead, they stayed in 3-star hotels and backpackers’ accommodation.

The bank refused to lodge a chargeback request with the merchant’s bank, because it decided that there were no valid chargeback rights under the Visa Core Rules and Visa Product and Service Rules.

AFCA’s determination was in favour of the bank’s refusal for these reasons:

  • “A chargeback is a right under the card scheme rules to reverse responsibility for a transaction. A successful chargeback results in a refund of the disputed transaction from the merchant to the customer. The card scheme rules are controlled by the relevant card scheme provider (in this case, Visa).”
  • The bank could not raise chargebacks for the disputed transactions under the reason code 13.1. The right is limited to the portion of the services not received. The code excludes disputes about the quality of the services the merchant provided (i.e. the dispute in this case).
  • Reason code 13.3 is more appropriate in this case as it applies where the services provided are not as described or are defective. It is only available after a cardholder has cancelled the services, or if the services cannot be cancelled, after the cardholder has requested a credit from the merchant. The amount of the chargeback is limited to the amount of any unused portion of the cancelled service. In this case, no chargeback was available as the customer did not cancel any of the services and the travel services were fully utilised.
  • The cardholder explained that the reason she did not cancel was because it was not convenient to cancel the services after they had already arrived in Europe. She would have to make alternative arrangements for accommodation rights and return flights to Australia. AFCA said that this did not change the fact that the services were fully utilised. Put another way, there was no unused portion of the services for which the bank could have successfully charged back under reason code 13.3.
  • AFCA concluded that: “The bank correctly identified that the customer did not have chargeback rights in relation to the disputed transactions under the card scheme rules. The bank is not required to submit a chargeback request to the merchant’s bank when the customer does not have chargeback rights.”

Comments

  1. The customer complained that the itinerary was not provided in full because the cruise line cancelled stops at two ports in the itinerary. AFCA decided that a variation of itinerary permitted under the terms and conditions was not a cancellation. Specifically, the tour provider / cruise line could rely upon this condition in the holiday package itinerary to vary the itinerary (to cancel stops at two ports):

    Itineraries are subject to change based on weather, availability, and other factors beyond our control. We ask that you make the most of your travel experience and remain flexible in the event of changes….

    As a result, AFCA determined that the bank was entitled to reject the chargeback request as reason code 13.1 was not satisfied.
  2. AFCA found that there was no unused portion of the services for which the bank could have successfully charged back, and so reason code 13.3 was not satisfied.
  3. Claims for unsatisfactory quality are not valid claims for chargebacks under the credit card schemes. These claims need to be made under the Australian Consumer Law in tribunals and courts for breach of consumer guarantees such as the failure to provide the services with due care and skill and the failure to provide services which are reasonably fit for purpose.