In the 1960s, the government passed the Truth in Lending Act. The act, which was meant to protect consumers, allowed them to dispute payments on their credit cards. The goal was to create a way for consumers to protect themselves from unauthorized charges that required them to pay debt that wasn’t theirs. Unfortunately, the act hasn’t aged well. It was created during a time when people kept their credit cards in their wallets and only used them in physical stores. These days, more consumers purchase items online, and the less-than-honest ones exploit loopholes to get both the product and their money back.
The Definition of Friendly Fraud
Imagine someone steals your credit card numbers and uses them to make several purchases without your consent. This is traditional fraud. Friendly fraud takes the method a step further, though. It occurs when a person or someone he or she knows uses credit card information to purchase items. Once purchased, the consumer then reports the transactions as unauthorized. Consumer protection regulations often require the issuing bank to take consumers at their word and reverse the transactions. In the case of friendly fraud, this means the person receives his or her money back while keeping or reselling the products purchased.
Why Chargeback Scams Are a Problem
Friendly fraud is problematic because it’s so easy to accomplish. A survey conducted in 2018 showed a whopping 66% of consumers expected customer service responses without 10 minutes. Many businesses, especially small ones, simply cannot accommodate that. On the other hand, nearly 80% of issuing banks allow purchase disputes with the quick click of a button, and because it’s faster, customers often go this route. Additionally, merchants must have compelling evidence, such as written documentation, that friendly fraud is occurring. Because the law so heavily favors the consumer, it is difficult for businesses to prove they deserve the revenue they have and did not facilitate an unauthorized transaction.
How To Prevent Friendly Fraud
The easiest way to fight friendly fraud is to be proactive. Implement strategies to prevent it before you even see it happening. An increasing number of businesses are joining collaboration networks that offer chargeback protection for merchants. These networks help credit card issuers and businesses work together with the proper tools to detect repeated fraudsters and more readily prevent unwarranted transaction disputes. Networks mean merchants can share intelligence faster and get ahead of the problem of friendly fraud.
Collaboration networks such as the one created by Ethoca can help you to prevent friendly fraud from eating into your profits. Fight the problem now to ensure your business continues to run smoothly in the future.
Author: Andy Quayle
Andy was born in the Isle of Man and currently lives in Pittsburgh.
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