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The Number One Legal Threat To Your Coaching Practice Is Not A Lawsuit – It’s Chargebacks

“My Bank debited 2,000 Euros because my client from the US filed a chargeback! They said they would only credit the money if my client withdrew the dispute or if I answer and win the claim. I don’t know what to do!”

This was the frantic text Elaine, a life coach in Sweden, sent to her lawyer.

Before this incident, she had never heard of a chargeback, nor was she warned before her bank debited the 2,000 Euros from her account.

Without any other recourse, she would waste hours answering a fraudulent claim filed by a client she had been personally coaching for the last three months. 

If you’re not familiar with chargebacks, you should be.

With more businesses moving toward digital and online payment, there is a steady and quite alarming rise in the use of this mechanism.

In fact, a published report showed an average of 19% increase in incidents of chargebacks in 2023. Another, published by LexisNexis, found that chargebacks cost businesses USD 3.75 for every USD 1.00 disputed by customers. 

If businesses don’t prepare, chargebacks can present a greater threat to their business than lawsuits.

What is a chargeback?

A chargeback occurs when a client requests a credit card or payment processor to reverse funds following a debit or credit card purchase.

There are three types of chargebacks:

  1. A merchant error chargeback happens when the business owner commits a mistake when charging the transaction.  The most common examples are duplicate charges or incorrect charges.
  2. chargeback fraud occurs when the cardholders’ cards or accounts are compromised and used without their consent.
  3. Friendly fraud, which is the most difficult to dispute, is called as such because the customer would make claims that appear honest and without malice.

The third type is the focus of this article.

Why coaching services are vulnerable to chargebacks

Let us look at the common reasons used by clients as the basis for chargebacks against coaches:

  1. That the charge was fraudulent or unauthorized.
  2. That the service was not received.
  3. That the service was received but significantly not as described.

The third reason is, of course, highly subjective, which makes it difficult to dispute.

Coaching services are vulnerable to chargebacks because they don’t involve exchanging physical products. Selling non-tangible products poses risks, especially if a highly emotional investment is involved—which is true for high-ticket coaching programs. 

The highly emotional investment creates a level of expectation, which, if unmet, can push a customer to file a chargeback on the grounds that the service received was significantly not as described.

Unfortunately, if coaches cannot set up a system to help counter the chargeback claim, they face a rather expensive and exhausting process, which can take weeks to several months to resolve.

Why is a chargeback more threatening than a lawsuit?

The internet and the improved technology of video call platforms made it possible for coaches and their clients to be in different countries.  However, legal mechanisms for resolving disputes haven’t kept up. 

If a client is dissatisfied with the coaching services they’ve received, they have a couple of options for trying to get a refund. Traditional lawsuits can be tedious and expensive for the client. In most cases, they would rather settle the dispute with the coach or the business owner than instigate an expensive lawsuit.

chargeback claims, on the other hand, are very convenient for the client—in fact, more convenient than addressing the issue with the business owner.  

If businesses don’t prepare, chargebacks can present a greater threat to their business than lawsuits.

As an experiment, I tested filing a chargeback form in PayPal and a similar form from a bank.  Both forms took me under ten minutes to submit.  A person without legal training can complete these forms in less than an hour. 

Once the chargeback is filed, there is nothing else for the client to do but wait for the result. There is literally nothing to lose from using this mechanism except a few minutes of one’s time.

Compare that to using traditional dispute mechanisms, like filing lawsuits and entering mediation proceedings, which are expensive and time-consuming.

Due to ease of use, the chargeback mechanism, which was once created to fight fraudulent transactions, is now being used fraudulently against business owners.

The chargeback process

A chargeback starts with the customer disputing a charge, either with the payment processor, the bank, or the financial institution that issued the credit or debit card used to pay for the service.

The payment processor or the financial institution immediately places the disputed amount on hold.  The business owner will then be allowed to refute the claim.

If the business owner fails to provide evidence or the evidence is not considered satisfactory, the payment processor or the bank will generally approve the request for a chargeback, and the money is reverted to the claimant.  

If the payment processor or financial institution rules in favor of the business owner, the previously held or frozen money will be returned to their account.

Once the chargeback claim is filed, there is no way for the business owner to stop the process unless they can convince the claimant to drop the dispute.  This process then puts the business owner at the mercy of the payment processor, the bank, or the claimant.

The true cost of chargebacks to coaches

1. Financial Impact

There is no doubt that the most significant cost of chargebacks is the financial loss.  When a client initiates a chargeback, the coach shoulders the chargeback fee, typically between USD 20 and USD 100. The disputed amount will automatically be restricted or debited from the coach’s account.

In case the client wins the chargeback, the fees retained will be credited back to the client. If physical products were also delivered to the client, they would not be obligated to return them.

2. Credit Card Reputation

Having several chargebacks claimed against one’s coaching practice or business can result in penalties from payment processors or credit card issuers.  It can also lead to payment of higher bank fees or, worse, the revocation of one’s ability to process credit cards.

3. Time and Operational Costs

Refuting chargebacks is a time-consuming process. Preparing evidence to refute the claim takes significant time and resources.  Not only that, disputing fraudulent claims can divert one’s attention and energy from more important matters.  It consumes time that could have been spent on other paying clients or building the business.  

Prevention is better than a cure

For coaches and service-based business owners whose earning capacity is tied to how much quality time they can “sell,” disputing chargebacks has a very high cost, which, if quantified, may even be higher than the disputed amount.

The highly emotional investment creates a level of expectation, which, if unmet, can push a customer to file a chargeback on the grounds that the service received was significantly not as described.

It is imperative, then, that efforts be directed towards preventing chargebacks in the first place.

Here are some of the most effective ways that service-based business owners can prevent chargebacks:

  1. Using a recognizable DBA (doing business as) on the merchant account so customers can easily identify the business on their credit card statement.  Sometimes, it is just a matter of the customer not recognizing the transaction and reporting it as a suspicious charge.

    Adding accurate billing descriptors that appear on the client’s credit card statements can also eliminate confusion. For example, use “Coaching Sessions with X business” to describe the service instead of just using “Sessions” as a description.

  2. Keeping track and having written evidence of all client interactions is vital.  This means that the coach must prove that the coaching terms were accepted and the services were delivered. 

    Organizing these records will reduce the preparation time when disputing the chargeback and may require Client Relationship Management (CRM) software.
Coach keeping record
  1. A coach must add a chargeback provision on the client contract and use proper disclaimers. If the agreement is clear that a chargeback, even an attempted one, will merit an additional fee, this may deter unscrupulous clients from initiating friendly fraud.  

    The agreement should also guide the parties on what needs to be done in case of a dispute so that customers with genuine concerns can use this mechanism instead of filing a chargeback.
  1. Payment processors now offer chargeback protection, which acts like insurance, that can be obtained for payment of a monthly or yearly fee. It must be remembered, however, that chargeback protection will only reduce the effects of chargeback but will not diminish all chargeback liabilities.
  1. Finally, opening the lines of communication with the client is always a good move.  Sometimes, a chargeback is initiated because the client finds it difficult to communicate with the coach.  If there is open communication between the parties, well-intentioned clients will not utilize drastic measures like a chargeback, which only sours the relationship.

How to dispute a chargeback claim

Recalling Elaine, the coach at the outset of the article, here are the things she can do to refute the chargeback claim from her client:

  1. Remain calm and don’t panic. 

  2. Contact the client, ask why they filed the chargeback, and make a request for its withdrawal.  This has two purposes: (1) to convince the client to cancel the chargeback; and (2) to gather information that can help in disputing the chargeback claim later on if necessary.  

  3. Start gathering records, contracts, e-mails, and agreements showing what was promised and what was received by the client.

  4. If the client refuses to withdraw the chargeback, prepare your response.  The answer should be factual, simple, straightforward, and backed by evidence. Remember that a person in the payment processor or financial institution’s office is reading your reply.  Your case is not the only one they are dealing with. If your answer is long, dramatic, and has a lot of unnecessary details, your reply will not be given any merit.

  5. Be mindful of deadlines.

A change of mindset is necessary

Business owners, in general, and coaches, in particular, need to understand that no amount of preparation can completely prevent a chargeback dispute from happening.  It can happen to anyone.  Thus, one must be prepared for that eventuality by putting in place the above protective measures. 

Chargebacks are no longer a matter of if, but when. 

Preparation and prioritizing legal protection at the beginning is key.  Unless the coach has a legal background, this preparation often entails costs in terms of money and time.  Treat these costs as investments, which will not only lower the financial impact of chargebacks but can also help one face this threat with confidence and peace of mind.

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Vena Verga -Danemar - Legally She Can - Guest Author
Vena Verga-Danemar

Vena is the Onlinepreneur Legal Strategist and genius behind Legally She Can and Legally Fluent® Podcast. She combines her knowledge as a business lawyer and experience as an entrepreneur to help women coaches and course creators remove the legal risks and the drama that prevent them from getting clients worldwide.


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