|March 20, 2000
Dear Sir or Madam:
This letter is submitted in response to the request for comment from the Department of Commerce ("DOC") and the Federal Trade Commission ("FTC") (collectively, the "Agencies") on issues relating to the use of alternative dispute resolution ("ADR") for online consumer transactions ("Request Notice"). The Agencies also solicit requests to participate in the public workshop ("Workshop") that the Agencies plan to hold in Spring 2000 on this issue. Visa appreciates the opportunity to comment on this important matter.
The Visa Payment System, of which Visa U.S.A.(1) is a part, is the largest consumer payment system in the world, with more volume than all other major payment cards combined. Visa plays a pivotal role in advancing new payment products and technologies to benefit its 21,000 member financial institutions and their millions of cardholders worldwide. In fact, there are more than 970 million Visa-branded cards held by consumers globally, which generate over $1.5 trillion in annual volume worldwide and over $700 billion per year in the U.S. Visa is accepted at more than 18 million worldwide locations, including at more than 550,000 automated teller machines in the Visa Global ATM Network. Visa also has more than 80 smart card programs in 35 countries and on the Internet, with 23 million Visa chip cards, including over 8 million Visa Cash cards.
Visa and its member financial institutions are on the cutting edge in addressing the myriad issues associated with electronic commerce, including electronic commerce-related payment products and systems. Few industries are likely to be impacted more by the advent of the Internet than the financial services industry, and no payment system has, and will continue to have, a greater role in the electronic commerce revolution than Visa. In fact, the majority of all electronic commerce transactions today are accomplished using Visa payment products.
In the Request Notice, the Agencies specifically request comment on what ADR programs currently exist for online consumer transactions and whether these programs address cross-border transactions. In addition, the Agencies specifically request comment on, among other things, the role of governments, if any, in connection with the use and development of ADR programs for online consumer transactions.
Visa has long used a form of ADR as its primary means of handling disputes in the Visa payment system. In particular, Visa and its Members have carefully developed a "chargeback" mechanism which is incorporated in the Visa Operating Regulations and which provides a cost-effective means to resolve transaction disputes involving a Visa Card, even if the merchant and the consumer are geographically dispersed. As a result, Visa's chargeback process provides practical and effective consumer protections for international electronic commerce transactions.
Visa Payment System Chargeback Rights.
A chargeback is the return of a transaction from the issuer of the card used by a consumer to the financial institution that "purchased" the transaction from the merchant. Chargebacks are permitted under Visa's rules for many reasons, including certain disputes between the cardholder/consumer and the merchant. For example, the Visa Operating Regulations permit issuing financial institutions to initiate chargebacks in cases where the institution's cardholder does not receive purchased services or goods, where goods delivered are not as described, or where the goods delivered are defective. The Visa Member financial institution receiving a chargeback has the right to dispute its validity, and ultimately Visa resolves disputes that are not settled directly between the Members.
What is important to understand about chargebacks is that they are contractual rights and obligations between the financial institutions that issue Visa Cards and the financial institutions that sign merchants to accept Visa Cards, and that these rights and obligations derive from their Visa membership and their exchange of Visa-branded transactions. They give no direct rights to consumers, and their exercise is optional for issuers; however, they do provide a worldwide level of consumer protection that issuers can exercise on behalf of their Visa cardholders.
Visa's chargeback rules do not attempt to track all of the possible consumer protection laws around the world, although some chargeback rights do correspond with or expand upon statutory rights granted to consumers in particular countries, such as the rights granted under Federal Reserve Board Regulation Z to dispute certain credit card transactions. The chargeback reasons permitted under Visa's rules for international transactions have been adopted to enable issuers of Visa Cards to address the fundamental consumer concerns of their cardholders, and incidentally to reinforce the reputation of Visa Cards as the best way to pay.
The Visa chargebacks for disputes between consumers and merchants described above cover most of the disputes that typically arise between consumers and merchants in both domestic and international transactions. Visa's chargeback rules do not correspond in every respect with each country's consumer protection laws because chargeback processing is expensive and complex, and as a private adjudication process, the rules must be clearly and consistently defined for every participant.
In addition, it is important to recognize that the chargeback system would break down if each issuer in every country around the world created its own set of chargeback rights corresponding to the particular consumer protection laws in their country. The Visa Members signing merchants would encounter substantial problems in determining the validity of a chargeback based on the consumer protection laws of another country, and merchants doing business with consumers in other countries would have similar difficulties in determining what their liabilities might be under a wide variety of foreign laws. Finally, as the ultimate arbitrator, Visa would be required to acquire expertise in the laws of the nearly 180 countries in which Visa cards are issued. Moreover, even if Visa could do so, the broad range of possible results would create such uncertainty of payment that merchants would be discouraged from accepting Visa-branded payment cards at all.
Role of Government.
It is critical that the Agencies, as well as other governmental entities, recognize the validity of existing market-driven contractual arrangements like the Visa payment chargeback system. Free market solutions like the Visa payment chargeback system, while not perfect, do accommodate many of the common consumer protection needs of electronic commerce. They have evolved in response to the complex and varied requirements of international consumer transactions. Visa cautions against attempts to "improve" on payment system chargeback processes through such approaches as uniform statutory consumer protection rules enforced through mandatory payment system chargeback requirements. Free market solutions may appear to lack the "wisdom of Solomon," but in the absence of Solomon, they are the best we have. Governmental interference in what is a delicately-balanced private system for dispute resolution would not only be inappropriate, but harmful.
Panelist for Workshop.
Because of my experience with Visa, I would like to volunteer to participate as a panelist at the Workshop. I would be happy to discuss Visa's system and its success in providing a cost-effective means to handle transaction disputes. In this regard, I participated as a panelist at the 1999 FTC workshop on "U.S. Perspectives on Consumer Protection in the Global Electronic Marketplace," at which I discussed the Visa chargeback system as part of a panel discussion on ADR programs.
We appreciate the opportunity to comment on this important subject. If we can assist you further, or if you have any questions regarding the above, please feel free to call me at 650.432.3111.
Russell W. Schrader
1. Visa U.S.A. is a membership organization comprised of U.S. financial institutions licensed to use the Visa service marks in connection with payment systems.