Most people have made an “accidental” purchase at some point in their life – buying something and then immediately regretting it. In the age of online shopping, making such a purchase is easier than ever. But backing out is not. Sometimes you can cancel an order right away, but often the window for cancellation is so short that you end up missing out.
Recently, I found myself in a similar situation. I bought yet another piece of crap that I don't really need and I can't name because I'm a bit embarrassed. Before anything was even shipped, I contacted the seller and tried to cancel everything. Unfortunately, it was refused. Angry at myself and a bit angry at the seller, I had a sinister thought. What if I filed a dispute with my credit card company? Maybe I could try a chargeback, say it took too long to ship, or that I ordered it by mistake, and get my money back? At the very least, try Something I definitely didn't want, but it was free so why not. Frankly, I didn't do this and I don't know if it would have worked, but I seriously considered it.
The bank acts as the referee and decides what to do with the money.
One of the biggest perks of my credit card, the ability to dispute a transaction in order to get a refund, nearly made me a bit of a dick. Unaware of the term, I was considering committing first-party fraud, colloquially known as “friendly fraud,” an increasingly common phenomenon in which customers intentionally or accidentally dispute legitimate transactions as fraudulent to their credit card issuers or banks.
A credit card chargeback occurs when a consumer sees something on their statement that they don't like or recognize and asks their bank to investigate. The bank investigates the charge and decides whether to refund the money. Federal law means that consumers can't owe more than $50 for a fraudulent charge. The merchant can also act if they have proof that the transaction was fine. The bank acts as an umpire and decides what to do with the money: take it back from the merchant and give it to the customer, make the consumer pay after all, or pay both parties and cover the costs themselves.
“Chargebacks are a big issue for a lot of retailers. It's not something you can just ignore,” said Oscar Bello, chief commercial officer at Chargeback Groups, a company that helps retailers handle chargebacks and manage disputes.
In the case of transactions made by fraudsters rather than consumers, there are plenty of legitimate reasons to dispute and initiate a chargeback: There was a billing error, the product or service wasn't delivered as promised, the transaction was never authorized in the first place, and other legitimate explanations.
There are also chargebacks that are unethical or even extend to cardholder fraud – lying about shoes not being delivered when they were, lying about the shoes being fine or damaged. small A pair of shoes that are slightly damaged but still wearable. Maybe you cancel a restaurant reservation and dispute the cancellation fee, even though the restaurant's website clearly states the cancellation fee. Or maybe you pay for a car repair and then say the workmanship is shoddy. In these cases, the customer is committing fraud or crossing a suspicious line, but it's hard for credit card issuers to determine what actually happened. It's hard work to track whether a shoebox in the mail has been delivered to the buyer, let alone for a bank to determine whether all the work done by the auto repair shop was necessary and proper.
There's no “silver bullet” to figuring out who's right in every instance of a consumer dispute, said Domenic Cirone, vice president of acquirer solutions at Count, a fraud prevention company owned by Equifax. And even if artificial intelligence can help, humans are often needed to sift through the data and complex factors, he added. And most consumers have good intentions, he said.
Chargebacks and friendly fraud are not new problems, but they are exacerbated by e-commerce. It's much easier to say you never received the sweater you bought at Gap than to say you bought it at the store but for some reason forgot to bring it back, or that you suddenly realized it was awful when you got home. According to a 2023 report from Ethoca, a Mastercard-owned platform that helps retailers handle fraud and disputes, U.S. chargebacks could reach $15.3 billion by 2026, more than double the $7.2 billion in 2019. Many of them are friendly fraud. Citing statistics from data analytics firm Datos Intelligence, the report says that 75% of fraud digital companies encounter is first-party fraud.
Aside from the sudden increase in e-commerce, there are several other factors that have made friendly fraud more common: Consumers are increasingly disputing service-related issues (e.g., goods were damaged, service did not meet expectations, etc.) Inflation and economic pressures may also be making it more attractive to dispute charges.
Plus, people pay with digital transactions all the time, and they're really hard to track. Maybe you don't remember making a purchase, or your kid put something on the card and you didn't say it, so you record it as a fraudulent charge when it's not actually fraudulent. Last year, I Accidental I committed friendly fraud against the airline because I forgot I had paid a fee to check my luggage and tried to dispute the charge before realising it.
“Checkout is so quick and easy that it's great for the consumer, and that translates into more transactions,” said Robert Painter, vice president of global channel sales at Count. “The old adage is, more money means more problems. And on top of that, there's confusion.”
Of course, what's happening on the consumer side isn't always chaos; there are also cases of people gaming the system.
Since COVID-19, we have found that our current clients have become very aggressive towards the dispute system.
Kevin is an entrepreneur who asked me to keep his identity a secret because he was worried his business partners would be upset if he spoke to the press. He has lost thousands of dollars and countless hours in disputes he considers frivolous and often fraudulent. One of his jobs is selling tickets for swamp tours near New Orleans. Kevin says people who went on the tours dispute the price, claiming they didn't see enough alligators. And customers of his car transport company, which he recently sold, disputed claims because the car arrived a day or two later than expected or, in one case, the driver didn't speak “good” English. Essentially, some people use disputes as a review system, asking credit card companies for money back if they didn't give the experience five stars. Kevin has won chargebacks before. He recently successfully fought a cancellation claim after a customer agreed to extend the tour time but then canceled at the last minute. But more often than not, he ends up losing, and overall it ends up wasting a huge amount of time anyway.
“Since COVID-19, we've found that clients today have become very aggressive towards the dispute resolution system,” Kevin said.
Kevin is not above using questionable consumer dispute tactics (he recognizes the irony here): He recently successfully disputed a $200 charge from a golf course after being told he couldn't change his tee time.
The ability to dispute a transaction is generally a useful credit card perk, and one that most consumers use as a last resort after trying to talk to the merchant (if they can get in touch with them at all). Still, it's odd to see Citi, Amex, and others acting as chargeback arbiters, since their business motivation is to prioritize customers over merchants. It's hard to feel sorry for big companies that may lose money on transactions that barely have a record on their records, but for small businesses this really puts a strain on them.
Sometimes, there's a pretty clear line between what's scam and what's not, and what's a legitimate chargeback and what's not. If your online order never arrives and their customer service number isn't responding, it's legitimate. If your order arrived but they claim it didn't, it's scam. Rightly or wrongly, many cases are never litigated to the end.
“Not every merchant is ready to fight,” said Bello of Chargeback Group.
There are grey areas too. If you place an order and it arrives in 12 days instead of the promised 10, you have a good chance of winning a dispute. Is this really fair? Hmm.
I don't know if my dispute about the mystery product was approved (it was some silly health supplement I saw online, get it?), but I wouldn't be surprised if it was. I've never disputed a purchase before, and credit card companies want to keep me happy. The supplement industry is unregulated and scammy, so I don't think I would have felt bad about initiating a chargeback. That doesn't mean it was the nicest thing for me, though.
Emily Stewart He's a senior correspondent for Business Insider, writing about business and economics.
