The Ins and Outs of Chargeback Fraud Protection

Much like its name says, a chargeback is a reversal of a credit card payment that comes directly from the user’s bank. It acts as a safety net protecting the customer from dishonest merchants. 

The difference between chargebacks and refunds is that users do not contact the business to get their money back—instead, they reach out to the bank to forcibly retrieve their funds from the merchant’s account. 

Chargeback fraud—also known as friendly fraud—happens when consumers willingly abuse the chargeback process. This is a form of theft, with the cardholders falsely disputing a legitimate purchase with their bank, even though they received the correct product or service from the vendor.


Is Chargeback Fraud Illegal?

Industry regulations have not been keeping up with the changes in payment options, and as a consequence, some customers started misusing chargebacks for their own gains. 

There is nothing friendly about a friendly chargeback. It is illegal and criminal—the only issue is, it may be tricky to prove who between the two parties is in the right. For example, if a customer claims they never received an item they purchased from your online store, it may be nearly impossible to prove so without the customer’s signature on delivery.

There are eight main types of wrong reasons that motivate cardholders to file for a chargeback, including:

  • Wanting to get something for free
  • Avoiding a restocking or handling fee
  • Buyer’s remorse
  • Difficult return process
  • Unfitting delivery schedule 
  • Expired refund limit
  • Purchase made by another person who misused the owner’s card
  • Purchase made by the buyer who forgot about making the transaction

How To Protect Yourself Against Fraudulent Chargebacks

There is no foolproof way to completely dodge the fraudsters, criminals, and other types of crooks targeting your small business. While avoiding them altogether may be impossible, you can minimize the chances of getting hoodwinked and reduce potential damage if chargeback fraud still happens to you. 

Take these precautionary steps by abiding by these key principles:

  1. Use a reputable payment processor
  2. Choose seller protection features
  3. Keep proof of transactions
  4. Make sure your payment description is clear and accurate

Use a Reputable Payment Processor

If you run an e-commerce store, you’ll be accepting payments as card-not-present transactions, which are higher-risk than when you can physically inspect the card. 

Whatever payment processor you use, make sure it has sturdy fraud detection features in place, such as entering the CVV card number and the address verification services (AVS). AVS checks the customer’s billing address against the one on record with the card issuer.

Choose Seller Protection Features

Shopify, PayPal, and Cash App are some examples of payment processors that offer fraud detection and monitoring services.

You will be able to:

  • Set up which charges can be automatically approved, and which require additional authorization
  • Whitelist and blacklist selected account numbers
  • Get insurance for chargeback losses 
  • Deal with disputes through the payment platform

Keep Proof of Transactions

If you get tangled up in the chargeback dispute process, you’ll be glad that you kept tidy evidence of every transaction. This will include:

  • Copies of your receipts or sales orders
  • AVS results documentation (if available)
  • Proof of delivery in case of online sales
  • A copy of your return policy

Make Sure Your Payment Description Is Clear and Accurate

Your payment descriptor is how your company’s name shows up on your customers’ bank statements. If that descriptor is out of date, confusing, or incorrect, make sure you change it so that any customer can instantly recognize it. 

Some customers may be genuinely confused and file for a chargeback, while others may consciously choose to abuse the chargeback and pretend they don’t know where that charge came from.

Who Is At Higher Risk of Chargeback Fraud?

Merchants who deal with high-value goods that are also easy to resell—such as jewelry, electronic goods, and antiques—should apply extra caution to shield themselves from chargeback fraud.

Similarly, e-commerce vendors can be more vulnerable to fraudsters than those who run exclusively brick-and-mortar stores. 

Not all transactions are created equal, either. Bear in mind that some carry a higher level of risk than others:

High-Risk Transactions

Low-Risk Transactions
Card-not-present transactions (over the internet or the phone)

Transactions where the card is swiped, tapped, or inserted in the terminal

Manual transactions that don’t require card authorization

Manual transactions with a secured signature, card imprint, or authorization
First-time customers

Returning customers or established customers (such as legitimate businesses or institutions)

International orders (especially from Africa, the Middle East or South East Asia)

Online transactions authenticated by MasterCard SecureCode or Verified by Visa 

Sue the Chargeback Fraudster in Small Claims Court With DoNotPay

Fox details how DoNotPay makes it easier to fight companies by suing them in small claims court

If you’re a small business owner, you know how much every sale matters and helps you keep your company afloat. This is why it’s so infuriating when others shamelessly abuse the system and double-cross honest merchants, just to get away with free goods.

You can finally put a stop to these swindlers and take them to court. At DoNotPay, we’re committed to increasing legal access to everyone, regardless of whether or not they can afford a lawyer. Our app has been recognized by the American Bar Association and won the 2020 Louis M. Brown Award for Legal Access.

If you’re the victim of a chargeback fraudster, we recommend you sue them in small claims court and seek compensation for the damage your business sustained. Don’t worry if you’ve never done this before and you’re not familiar with court procedures or the difficult-to-comprehend legal jargon.

Backed by AI technology, our robot lawyer will find out the necessary information about the case from you. It will then go on to prepare and fill out the relevant legal forms and create a script outlining the legal argumentation you should present in court. We’ll take the work out for you so that you can focus on winning the case.

How To Request a Chargeback With DoNotPay

Speaking of chargebacks—if you need to file for one, you’d be hard-pressed to find an easier way to do it than through DoNotPay.

Follow these easy instructions:

  1. Log in to your DoNotPay account in your web browser
  2. Select the Chargeback Instantly tab and click on Get Protected
  3. Provide your info to our chatbot, including your bank details and information about the merchant 
  4. Verify your signature
  5. Submit the request

After you’ve completed these steps, DoNotPay will send a fax to your bank requesting a chargeback. Our app will also cite the relevant Visa and MasterCard codes that will further bolster your claim. And that’s all done!

Get Ahead With DoNotPay

Don’t saddle yourself with the everyday rigmarole of administrative tasks and overly-convoluted bureaucratic procedures. Our app has been created to overcome a variety of such challenges on your behalf, freeing up your time and saving your hard-earned cash.  

Whether you need help with American Express chargebacks or securing an Amazon Prime refund—to name just a few examples of what we can do—we’ll jump right in and do the job for you.

Log in to your DoNotPay account in your web browser and choose from any of our services below: