You could just call your Visa Representative who can properly advise you or you could hire a consultant - such as myself - to advise you on how to handle such cases.
The transaction you have described would be:
#1) Under Reg. E considered not unauthorized
#2) Under Visa rules considered unauthorized and prohibited.
If this were an ACH, we'd be done talking. You could hold the consumer liable and be done with it. But it's a Visa card transaction and that means you and the merchant must follow Visa's rules on how a transaction can occur.
Visa does not allow a merchant to obtain a conditional authorization for some future transaction that may happen. The merchant must pro-actively contact the cardholder every time they wish to bill the account - if the cardholder agrees at that time then the merchant can use the card information on file to charge the account that one time. That is not considered financing existing debt since it is a unique transaction that has cardholder participation much like calling the electric company to pay your light bill after you bounced the check. If the cardholder agrees to recurring billing than such recurring billing cannot be conditional and initiated by the merchant - such as if the consumer doesn't pay via another means. Why not? That's considered an existing debt obligation and as I have stated the Visa card cannot be used for such a transaction.
A merchant cannot under any circumstances use the Visa card to finance an existing debt. This is not debatable or rendered to interpretation. I cannot cite a Visa rule by number in an open forum but look into Volume 1 of the Operations Guide under Merchant Card Acceptance and search for Prohibitions for the exact rule. You would not lose the compliance case - though a chargeback for unauthorized does exist for the situation described and not using it if available would invalidate your compliance case - unless the merchant can provide a imprinted and signed sales receipt for the transaction in question.
It does not matter if there was a contract (nor for that matter any audio recordings since Visa will not accept it as evidence), since a contract is not an imprinted and signed sales draft and that is the only way to rebut a claim for unauthorized transaction. If the transaction is MO/TO then by default the contract cannot be proof since it is a mail/telephone transaction and there can be no physical evidence. Also, evidence of a valid CVV2 is not a valid representment right for an unauthorized card absent chargeback.
If you chose not to file a valid compliance case then that is your choice but that does not make the transaction valid. If the cardholder complains directly to Visa, then you will receive an inquiry from Visa USA and will be required to explain why you did not pursue a chargeback or compliance case. Further, a lawyer is allowed to request from you and present as evidence your established business practices, which include association rules, as evidence in a court case and could/would pounce on this requirement and the one I cited above. Is the minor risk of $400 (not $300) worth ensuring you don't have deal with any of that mess?
I am aware that many merchants use the evidence of a contract to validate transactions. That does not make such transactions legitimate and Issuers who chose to accept contracts as documentation when evaluating cardholder authorization are choosing to accept invalid documentation.
This in no way is a reflection on whether the customer is under obligation to pay the merchant but that is an issue between the customer and the merchant - not your FI. The issue here is whether or not the merchant has the valid and legitimate ability to charge the Visa card for the transaction in question - they do not.
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