How to Avoid Dishonest and Fraudulent Customer Credit Card Chargebacks


Credit card companies are wonderful at protecting consumers against credit card fraud by taking care of disputes whether they are incorrect amounts, a result of credit card fraud or stolen credit cards, as well as merchant errors. These refunds are called chargebacks. Chargebacks are not only disappointing to the merchant, but also they can be dangerous to your online business, putting your merchant account at risk if you receive too many. Fulfilling an online order can be risky, you face the threat of customers that make a purchase, file a phony dispute with their credit card company and keep the merchandise and their money. However, with the recent influx of data breaches at US retailers, merchants need to focus in on gift purchases, and purchases that just seem odd. Below are tips to avoid a dishonest credit card chargeback.

Check the basic information

Be wary of orders that have dramatically different shipping and billing addresses, mainly if the shipping address is in a different country. You’ll probably see different shipping and billing addresses for legitimate orders from time to time, as gift orders are very popular, but watch for address information that simply looks wrong. If your gut tells you that there may be something wrong with the order, call the customer and question the purchase.

Watch for abnormally large orders

In particular, you should be wary orders that have a large quantity of a single item – especially if you sell higher-priced items. For example, it is not likely that a single customer would need 15 digital cameras or 20 smartphones. Essentially, if an order is so large that is looks too good to be true, it probably is.

Require a signature on delivery

Particularly for large transactions, this may be worth the extra expense. By requiring a signature, your customer cannot make the claim that they never received the merchandise, since they would be liable for the package after it is signed for.

Legitimate chargebacks are hard on a business, let alone a chargeback that has resulted from a fraud. By implementing the above tips, you are sure to lessen your changes of suffering a credit card chargeback due to a fraudulent purchase.

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The FTC’s “Crackdown” on High Chargebacks

creditcard chargebacks

A lot of the FTC’s resentment of the payment industry seems to be established on the belief that chargebacks are necessarily, or at the very least a typical, indicator of shady business practices. Most in the industry know this is not the case, and that chargebacks can occur mostly for innocent reasons. Chargebacks can arise for any number of reasons as well, and most entirely harmless, therefore higher-than-average chargeback ratios may have nothing to do with fraud. In addition, their notion that processors have violated an asset freeze order by consenting chargebacks to be debited against reserve funds ignores the fact that chargeback processing is an intentional implementation.

Processors are not subject to chargebacks because they choose to be, but because of the law. The recipients of those chargeback privileges are usually the very same consumers the FTC is in charge of protecting. By requiring a processor to stop processing chargebacks from their “reserved account” established for that purpose, and forcing the processor to pay those chargebacks from its general funds, will make the processor the unwilling insurer of merchant errors, if any are to be made.

Because of this, merchants who are perceived to be working in a “high risk” market may be omitted from the payment card market, or forced to transfer their business to offshore service providers who operate outside of the FTC. Merchants may also be forced to operate within the virtual money realm of Bitcoin and others, which do not provide the security of FTC. In addition, if high chargebacks continue to be misinterpreted as a symbol of fraud, then it may lead processors and ISOs simply to drop the merchants that experience high chargeback ratios, even if the chargebacks are completely legitimate.
This can be the end for a merchant who depends on debit or credit card transactions to sustain its business.

In the end, there may be much to gain from an alliance between the FTC and the payment systems industry. On the other hand, the FTC’s continued squelching of processors and ISOs seems not only legally and factually ill-advised, but it is also prone to creating unintended ripple effects that will extend well beyond the few bad merchants the FTC should hope to shut down. However, sometimes the good have the pay for the mistakes of a terrible few.