The COVID-19 pandemic crisis and associated governmental directives have caused the cancellation or rescheduling of millions of events, reservations, and services that were prepaid on a credit or debit card. In many instances, a merchant cancels the event or service completely so a refund is normally given. In many cases, however, the service or event is still available, either on the date promised or a reasonable alternate date, but the cardholder’s ability to use or attend it has simply become extraordinarily difficult or inconvenient but not impossible. Inconvenienced cardholders seek refunds from merchants. If unsuccessful, a cardholder may dispute the charge to their issuing bank or card brand who often refund the charge, sometimes based on incomplete or inaccurate information. The resulting chargebacks to merchants are multiplying. Merchants, in turn, are burdened with disputing an ever-increasing number of chargebacks and, if necessary, entering the card brand’s arbitration process. In this environment, cardholders, or issuing banks on their behalf, have been tempted to inject the concept of “force majeure” to justify the refund and chargeback.
“Force majeure” is a French term literally meaning “superior force,” and generally refers to an unforeseeable or uncontrollable event that prevents one of the parties to a contract from performing. For example, if a force majeure event completely prevents a cardholder from attending an event, the cardholder may rely on the force majeure clause to “absolve” himself or herself from the obligation to pay, and thus request a refund. Think of the situation where a New Yorker, prohibited from non-essential travel because of the pandemic, is prevented from traveling to a concert in an unrestricted state, or from taking advantage of a prepaid VRBO reservation there. In such cases, the chargeback would likely be upheld.
The agreement between merchant and cardholder may not, however, contain any force majeure provision. Indeed, it is not unusual for such contracts to state the transaction is non-cancellable and non-refundable. There is no general rule that “force majeure” applies to transactions regardless of the agreement’s terms and conditions. Thus, absent a force majeure provision in the merchant/cardholder agreement, a cardholder wishing to cancel an otherwise available and non-cancellable service or event cannot rely on “force majeure” to excuse their obligation to pay. This conclusion should prompt merchants to review their terms and conditions to see if they include an unnecessary force majeure clause that might only be invoked in the cardholder’s favor.
Other legal concepts may apply to the particular facts and circumstances and, in the appropriate case, might justify a refund or chargeback. These include the concepts of “frustration of purpose,” “impossibility,” and “impracticability.” These legal doctrines may apply regardless of the contract’s terms, and even if the contract is expressly “non-cancellable” or “non-refundable.” Separately, state consumer laws also pose a legal hurdle and risk to merchants outside of the chargeback dispute process, often in the form of class action lawsuits.
In conclusion, force majeure should become an issue in the chargeback process only if there is a force majeure clause in the applicable agreement. Merchants are under no obligation to include a force majeure provision in their customer agreements and instead may choose to make their transactions non-cancellable and non-refundable under all circumstances. Indeed, Visa’s “Dispute Management Guidelines for Visa Merchants,” for example, provide it is up to the merchant to establish its refund or cancellation policies, and “Visa will support [the merchant’s] policies, provided they are clearly disclosed to cardholders.” Merchants should view the current pandemic crisis as an opportunity to reassess the terms of conditions of their contracts and, as always, follow the card brands’ and their processors’ best practices for avoiding chargebacks.
