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Trade associations’ concerns about refund rights in the European Council’s position on the third Payment Services Directive (PSD3) could slow the progress of the EU’s updated regulatory framework for payments.
In a statement issued in August 2025, trade associations from across the payments ecosystem questioned proposals to extend unconditional refund rights for direct debits (DDs) under Article 62(1) to all merchant-initiated transactions (MITs).
The co-signatories urged legislators to remove the requirement for unconditional, “no questions asked” refunds for MITs, retaining it only for direct debits.
According to the statement, payers would be able to request such refunds from payment service providers (PSPs) within eight weeks of any MIT.
"What we have warned about is that expanding it would open a huge hole of problems. If you already have a chargeback mechanism for cards and then also give an eight-week unconditional refund right, you can see what will happen,” Atze Faas, payments advisor at Eurocommerce told Vixio.
Faas added that it could negatively impact industries such as hospitality and tourism.
“Take a hotel stay as an example. If a guest damages a room, the hotel wants to charge the card on file, but under the current proposal the consumer could still demand a refund, which the hotel must honour,” he said.
“These kinds of loopholes are why unconditional refunds should be restricted to direct debits.”
Merchant concerns
In the joint statement, the trade associations warned that, given delayed settlement times, merchants may notice a rejected transaction only after a refund has already been issued.
“If the product – for example, on-demand video streaming – has already been consumed, this request can amount to what is called friendly fraud. This puts the merchant in an impossible position, and can lead to significant losses,” warned CCIA Europe’s policy manager, Leonardo Veneziani.
The associations warned this could be particularly detrimental for smaller merchants, which would bear the operational and financial burden of additional chargebacks.
"The current regime is well balanced, and we’re not convinced the new rules are necessary. In fact, they could open up new avenues for fraud,” said Elie Beyrouthy, chair of the European Payment Institutions Federation (EPIF).
According to Beyrouthy, from a merchant perspective, “the concern is obvious”.
“Payment companies will issue refunds and the cost will come straight out of the merchant’s pocket,” he said, adding that stakeholders in the digital economy are worried too.
“If someone spends a whole month watching a streaming service, for example, there’s no way for the merchant to recover those goods or services.”
Beyrouthy added that although merchants in theory have the option of suing a consumer, it is unrealistic in practice.
“This is very concerning and could disrupt how businesses currently operate without delivering significant added value. It’s not solving a major problem, and the cost–benefit case hasn’t been made.”
Veneziani dismissed the idea that trade associations are trying to water down potential consumer protection enhancements in the regulation.
“Under existing rules, consumers can already seek refunds,” he said.
“Introducing an unconditional right to a refund, as currently drafted, could open the door for fraudsters to exploit digital services, especially given they would have eight weeks to claim a refund.”
Next steps for PSD3
PSD3 and the Payment Services Regulation (PSR) could be agreed by co-legislators as early as Autumn 2025. In September, the Danish presidency of the EU told the Economic and Monetary Affairs (ECON) committee that it plans to prioritise concluding the negotiations.
Veneziani believes the European Parliament’s text, particularly Article 62, is the best approach.
“It aligns with current rules by granting consumers refund rights while allowing merchants to challenge potentially abusive requests. Otherwise, the PSR risks creating more chaos for those trying to prevent fraud,” he said.
“There needs to be a differentiated approach between MITs and direct debits,” he added. “Treating them the same damages businesses and creates serious operational and financial burdens. MITs are already far more exposed to first-party misuse or so-called 'friendly fraud' than direct debits.”
Sources told Vixio that MEPs are largely aligned with the industry, and that the Council has been receptive, but that the Commission has been less so and would prefer to keep to the original proposal.
“If legislators want to extend unconditional refunds, there must be a mechanism to deal with goods or services that have already been consumed, for example, perishable goods or personal-hygiene items,” said Faas.
“Allowing someone to return or claim a refund eight weeks later for something that can’t realistically be resold or reversed would obviously create serious problems.”
Striking a balance between consumer protection and merchant viability will be crucial as PSD3 negotiations continue.
