friendly fraud

Friends Don’t Let Friends Commit Friendly Fraud

June 4, 2015|Posted in: Uncategorized

Two weeks ago, I was helping a buddy pack up his apartment as he was preparing to move from his 2B2B into a much smaller studio apartment that is closer to his work. This means that those college essentials like the beer pong table and bean bag chairs weren’t going to make the move, so we started a pile of stuff to donate to charity.

We were working on packing up his closet when he discovered a purse that he had bought for his now ex-girlfriend almost three months ago. It was a purse that she had her eye on for a while and he bought it for her as a surprise birthday gift. However, they broke up a week before her birthday and the purse has sat in the back of his closet, still in the packing box with tags and the shipping invoice, ever since.

“Man, I forgot about this thing! It cost $250. I wonder if I could still get my money back?” he said when he pulled it out of the closet. Three months is a long time, and most stores don’t issue refunds after such a long time. He looked over the invoice and, lo and behold, the return time limit had already expired.

I suggested that he add it to the charity pile, which he seemed to consider at that time. However, he remembered the post I wrote about chargebacks awhile back and, unbeknownst to me, decided to file a chargeback in order to get his money back. He told his bank that he was looking over his statements from the past year and that he didn’t recognize the $250 charge on his card. After taking a couple of days to process his request, the bank decided to reverse the charge.

I didn’t know about his action until last week when he took me out for beers to thank me for helping him move. I was kind of disappointed with his decision because he was, after all, committing friendly fraud. Over our beers I educated him about the repercussions his actions have on merchants, and I am sharing this here so that other people don’t accidentally commit friendly fraud too.

So What Exactly Is Friendly Fraud?

As discussed in my previous post on chargebacks, there are several different kinds of fraud connected to credit cards. When most people think of fraud, they think of criminals making fraudulent purchases on their credit card. What most people don’t realize, however, is that sometimes they are the criminals who are committing fraud! This was the case with my friend, and there are many other people out there who don’t realize that their abuse of chargebacks is a damaging, criminal activity.

Friendly fraud occurs when customers buy something, usually from an online store, then claims they never received it (when they actually did) or that it was a fraudulent charge (when it wasn’t). The customer then files a chargeback and, once it is approved, they get a full refund AND they get to keep the item that supposedly never arrived.

Chargebacks are intended to protect consumers, but as e-commerce continues to expand, businesses are struggling to stop unscrupulous customers from taking advantage by committing friendly fraud.

Don’t believe me? Check out this interview Monica Eaton-Cardone, COO of Chargebacks911, gave to ABC Eyewitness News. She equates friendly fraud with online shoplifting.

Also, a study conducted by Chargebacks911 found in the past couple of years, friendly fraud has increased by over 40 percent. Additionally, four out of five chargebacks are actually consumer fraud, not caused by identity thieves or security breaches.

Who Is the Real Victim of Friendly Fraud?

At first glance it may seem like merchants are the victims of friendly fraud because they are stuck paying the bill for deceitful shopping sprees. While merchants certainly do suffer because of loss of revenue, inventory, and penalties imposed by their acquiring bank, consumers also suffer from friendly fraud.

Friendly fraud increases costs for merchants. To compensate, consumers are going to have to pay higher prices. Banks have to spend more money to resolve these disputes too.

The headaches and fees that are imposed on merchants are passed along to consumers in the form of higher prices and higher interest rates for cardholders who display a suspicious pattern of credit card reversals. In the end, everyone loses to friendly fraud.

What my friend didn’t realize when he filed a chargeback was that he is now more likely to have higher interest rates on his credit card and that he contributed to a growing problem of consumer fraud, which affects us all.

So please, shop responsibly and educate your friends about the negative effects of filing fraudulent chargebacks! After all, friends don’t let friends commit friendly fraud.