When Credit Card Litigation Turns into “Friendly Fraud”
Key points to remember:
Chargebacks can be a valid way to get your money back if you’re unhappy with your purchase and the merchant won’t fix the issue.
But the chargeback process is also abused by some consumers, which is costly for retailers.
It’s worth checking that you have a legitimate reason for a chargeback before pursuing one.
It’s a cardinal rule of shopping: if you don’t like what you bought, you should get your money back.
Often this is quite easy. Generous refund policies abound. “The customer is always right” is a popular mantra.
And if a merchant is unwilling to resolve your issue, you have another option: ask your credit card company to reverse your payment, which is called a chargeback. Federal fair credit billing law gives you the right to dispute a charge in certain circumstances, and many issuers make the process much easier than the law requires.
But just as you shouldn’t abuse a generous returns policy, you shouldn’t dispute credit card purchases without a legally valid reason. Often referred to as “friendly fraud,” illegitimate chargebacks – including honest mistakes – cost US merchants dearly. According to a 2016 LexisNexis report, merchants with in-store sales attributed 31% of their fraud losses the previous year to friendly fraud.
Before you tell your credit card company, “I’m not paying for this,” save yourself and your merchant some trouble – make sure you have a solid reason for requesting a chargeback.
What you can dispute
You can dispute credit card charges with your issuer for three reasons under the Fair Credit Billing Act:
Someone else has used your card without authorization. Suppose a fraudster charged a big screen TV to your card. You can dispute this payment as an unauthorized purchase.
There was a billing error. Suppose the merchant charged you for two TVs, but you only bought one. You could also dispute this accusation.
You have made a good faith effort to resolve a problem with the merchant. Suppose you bought a TV and found the screen to be cracked. If the merchant refused to refund you, you can usually successfully challenge that purchase, if the purchase meets certain legal requirements.
Filing a dispute is simple. Often, all you need to do is click the “dispute” button on your issuer’s portal or online application and answer a few questions. The purchase is credited to you immediately. But “simple”, of course, does not mean “unimportant”.
What not to dispute
For merchants, losses from legitimate chargebacks are a cost to doing business, says Monica Eaton-Cardone, COO of Chargebacks911, a company that works with merchants to limit chargebacks. But she sees friendly fraud as “essentially cyber shoplifting.”
“The majority of consumers are honest and want to do the right thing,” says Eaton-Cardone. “If they know what’s going on with a chargeback and they actually see how [an illegitimate claim] steal money from the merchant, they won’t.
In addition to lost revenue from the sale, Eaton-Cardone says merchants must pay a fee, which averages $ 25 to $ 30, for each claim. Merchants can dispute a chargeback, but they might not win, especially if they can’t prove the charge was valid.
It’s easy to think your dispute is legally valid when it isn’t. Here are some examples of illegitimate chargebacks that might surprise you:
The “unauthorized purchase” was made by a friend or family member. Check with Authorized Users if they’ve made a purchase you weren’t aware of. A good rule of thumb: If you’re unwilling to file a police report on your child or partner for making an online purchase without your permission, don’t file a chargeback for it.
You’re not happy with a purchase but haven’t spoken to the merchant yet. “I urge consumers to take five minutes of their time, reach out and give the merchant the opportunity to resolve the transaction,” Eaton-Cardone said. If you don’t, a merchant could successfully dispute your chargeback.
Granted, the term “friendly fraud” is often a misnomer, at least when it comes to accidental chargebacks.
“’Fraud’ usually involves some sort of intent,” says Chi Chi Wu, staff attorney at the National Consumer Law Center. If you’re unhappy with a purchase, filing a chargeback immediately, without first trying to resolve the issue with the merchant, is at most “a failure to meet the procedural requirements of the chargeback right,” he adds. she does.
Filing a chargeback when you shouldn’t can lead to unintended consequences. You will almost certainly give up your chance to get a refund. Some companies also blacklist customers who initiate illegitimate chargebacks. And if your credit card issuer thinks you repeatedly violate your card agreement, they may close your account.
Before you dispute a charge, here’s how you can prepare:
Know why you are contesting the charge. If you believe someone is doing fraudulent purchases on your card, alert your issuer as soon as possible and request a new card and a new account number.
Gather the evidence. Keep receipts, photos, and merchant correspondence that support your claims, in case your issuer asks you to provide them.
Talk to the merchant. You don’t need to speak to the sender before disputing a payment in case of fraud or billing error. But if you are just not happy with a purchase, the law requires you to make a good faith effort to resolve the issue with the merchant first. Calling customer service first, rather than hitting the “dispute” button, could get your money back while keeping you on good terms with your retailer.
This article was written by NerdWallet and was originally published by Forbes.