Friendly Fraud Chargebacks Table of Contents
Simply put, chargeback fraud is when a consumer obtains goods or service from an online merchant, makes a purchase, and then asks for a chargeback from the online merchant after getting the goods or service. The fraudulent consumer then files a chargeback against the merchant's Web site, which can get them in serious trouble with the credit card processor and/or bank that issued the credit card. In addition, it can also lead to expensive litigation and the possible banning of the merchant from using the Web site to accept future credit card transactions. It is very important for merchants to understand how they can protect themselves against this type of fraud. This article will discuss some of the various steps that merchants can take to reduce the risk of being accused of friendly fraud.
Merchants need to know and understand what is a chargeback, in order to properly combat this type of consumer fraud. A chargeback is a valid transaction on the part of the cardholder. The chargeback request is initiated by the cardholder because they have a credit or debit account with the merchant that does not provide an automatic refund when the purchase is made. In order to ensure that cardholders do not falsely file chargebacks, merchants should make certain that all information provided by the cardholder to the web site is true, complete, accurate, and provided in a format that can be read by a computer.
Also, merchants need to know and understand when they need to ask a cardholder for consent to go into the process of making a chargeback. The most common times to ask a cardholder for consent to a chargeback include but are not limited to, the following: when the customer indicates that they received something faulty, or that the transaction was declined. In addition, merchants need to be careful that they do not initiate a chargeback when they should be communicating with the cardholder to resolve certain issues. Finally, merchants need to know and understand that they can be held responsible if they initiate a chargeback even when the customer has provided the required consent to do so. Chargeback and refund fraud is a real problem for merchants, but through education, they can greatly reduce the chance that they will be the victim of this type of fraudulent activity.
Several prominent economists posed the question, 'What does friendly fraud look like?' They started with the example of a well-known company which has settled with the Federal Trade Commission for over $600 million in settling claims brought against it by consumers. According to the story, the company's dishonest practices extended to changing the criteria used by its underwriters in deciding whether or not to classify a certain customer as a high risk or low risk consumer. This action, the economists argue, constitutes a kind of 'friendly' fraud on the part of the company.
It's easy to understand why many people may be concerned about what does fraud look like when it comes to the financial industry. After all, consider the case of Enron, the company that became infamous for its enormous and largely illegal debt collection activities. At the time, the government was forced to investigate Enron due to the fact that so many consumers were filing fraudulent claims with their credit card companies after they'd fallen behind on their payments.
At the time, Enron was also one of the top offenders when it came to changing the criteria of its underwriters to classify its customers as high risk or low risk, and then charging them outrageous fees as a result. While the FTC eventually brought the company into full compliance with its anti-fraudulent guidelines, the damage had already been done. The lesson there is that banks and credit card issuers cannot use loopholes to their advantage and then simply shrug it off as if it were a simple case of bad apples. If the bank or credit card issuer is found to have engaged in deceptive or predatory behavior, the government can sue them. And, if they are found guilty, the penalties can be quite high.
If you ever find yourself in a situation where you are the victim of an on the job friendly fraud, you have to understand that the best defense against it is a good offense. That is why most fraud investigators and auditors work diligently on developing new ways to capture fraudulent conduct on the credit application and the application for employment. Fraud on the forms usually occurs when an applicant for credit or employment applies for both. In many cases, the fraudulent activity is committed by someone who knows that he or she will be approved for either credit or employment.
The goal of any credit company, employment agency, or bank is to collect on every application they receive. Most of the time, agencies and banks have a process in place that goes far beyond just collecting on each application. In order to be successful, the entire system must be working properly. To prevent the application from being denied due to fraudulent chargeback claims, the credit agency and the bank must have a very sound system in place that detects the unauthorized use of one's credit and debit card. If you find yourself in a situation where you have been a victim of an on the job friendly fraud, you have to understand that you can take legal action against the company responsible for giving you the fraudulent credit card or debit card.
You may be able to recover some of your funds if the fraud was committed using a credit or debit card at a certain point in time. If the fraudulent chargeback claims were made within a three year time period, you most likely will not be able to recoup anything more than the cost of the credit or debit card that was used in the first place. The problem is that many credit companies and banks only keep track of their own records. In order to recover a refund, you have to get a copy of the original application, the statement that show all charges made, and the original receipt that shows the date of the transaction.
In a world where identity theft is a huge concern, you have to wonder if it is better to be safe than sorry when dealing with personal information. Many people are on the prowl for ways to steal other people's identities, and one way they use is to set up a' Friendly Fraud' business where they do nothing but accept credit card payments for items they never receive, while charging your card with the purchases you did make. Now some fraudsters are good at this and are quite legitimate. The problem comes in when they set up a fake business and are using your credit card information. This is known as a 'Friendly Fraud' operation and is usually committed by those who don't really have a business but who are looking for easy ways to make money.
With that said, there are several different types of 'Friendly Fraud' operations that are quite insidious. A classic example would be if you go into a store to buy a new product and you hand the sales clerk a wad of cash. They then either (a) grab your money or (b) run off with it. The problem here is that the only person who ever sees this type of setup is the store clerk who filmed the whole thing on tape, and that is not what you want.
When you shop online for products or services, you can avoid this type of 'Friendly Fraud' operation by simply performing your own due diligence before handing over any money or signing any agreements. This means doing a little research on the company, if they are reputable, or their customer service history. You should also look for testimonials or reviews online to see if their business is any good. If a company has many complaints against them or if they have been blacklisted by the Better Business Bureau, then stay away from them. It is much safer to deal with a company that is well-known and that has a good safety record.
Additional Costs of Friendly Fraud Many times the individuals under insured may not file their claims with their insurance carrier because they do not realize there are additional costs they will have to incur to receive their insurance claims. Most often these individuals either refuse to file their claim at all or in some cases will pay their victim's insurance company to settle their claim. Many times this is only after the victim has lost money and does not receive any type of support from the insurance company. Many times victims of Friendly Fraud may decide not to file their claim for one reason or another but the loss mitigation professional will help them understand the facts and help them find a way to recoup their losses.
Solicitors are expensive and most individuals cannot afford to hire an lawyer to fight their insurance Company on their behalf. Many times victims of fraud do not hire a lawyer because they do not understand the legal issues involved. When you have an lawyer working for you, it allows you the comfort of knowing that your legal issues are being handled by a professional with plenty of experience in this field. Also, it puts the pressure on the insurance company not to dig too deep into the litigation process. Again, it puts the burden back on the defaulter's insurance company and allows them to keep more cash in their pocket by cutting out the legal fees.
Many times victims of fraudulent activity do not realize that there are additional legal costs that may be incurred during the litigation process. Many times victims wait to hire an lawyer until their claim is completely closed out and no further claims can be pursued. Many times victims of this behavior wait until the damage is done, and then they contact their lawyers to recover their losses. As a result, they must now retain the services of another lawyer to pursue their claim once the damage has been done.
Recently there have been many cases of friendly fraud committed by medical and dental professionals. Some doctors wrote bad prescriptions for patients who needed painkillers to self-medicate. Dental hygienists saw how a patient with cavities filled with mercury and put filling compounds in his mouth to improve his appearance and thus did not advise him of the adverse effects of this. While some patients did not follow the oral directions given by their dentists, they got cavities filled and later died as a result of toxic gases present in the fillings.
There are also a lot of fraudulent claims made by chiropractors. They commonly manipulate spinal curves and misalign spinal bones, which cause dislocations and back pains. Chiropractic victims need not worry about friendly fraud as this kind of fraudulent activity is very rare and seldom reported. A victim must first see the doctor to confirm that he or she has a spine complication before he or she can file a complaint against the practitioner. Only after the doctor has confirmed that there is indeed a spinal problem should the victim take up the matter with the Better Business Bureau or take up the matter with the local medical authorities.
The most serious reasons why friendly fraud occurs is when the victim himself or herself fabricates a story to explain away any adverse effects caused by a particular medical procedure. For example, many patients who have been exposed to radiation due to an operation will often fabricate stories of cancer to claim compensation for their suffering. While the story might be true, the person must have been suffering from an illness or disease and hence cannot fake cancer to receive compensation for the radiation injury.
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