When a credit card is canceled due to fraud a merchant cannot refund prior transactions back to the same card. What should a merchant do?

Here’s the scenario. A merchant has an online store, auction, or donor site that accepts cards for a digital transaction. No hard goods are delivered. A consumer gets a statement that has a charge they don’t recognize. The consumer doesn’t call the merchant using the information that is on the statement with the transaction. The consumer calls their credit card company, says there is a fraudulent charge and cancels the card.

The merchant gets a chargeback notice with a detailed description of a fraudulent transaction complaint. The merchant didn’t know the charge was fraudulent and wants to refund the charge back to the consumer card. This is not possible because the account is closed.
The merchant should respond to the chargeback with all the relevant information, including whether the transaction passed address verification and or CVV code verification. The merchant should tell the processor their policy is to refund a disputed charge and they would like the consumer account credited. The processor will credit the account opened to replace the closed account; merchant will not be given the credit card information and will get a confirmation the case is closed.