Chargeback Abuse Goes ViralWorker Confronts Customer Who Asked for 26 Chargebacks in 7 Months

March 22, 2024 | 7 min read

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A middle aged woman holding a credit card is addicted to shopping and she is now black listed from credit cards, shopping, and stores. She’s not happy about it, in the style of red and teal.

Chargeback Abuse Goes Viral

In a Nutshell

In a recent video that went viral on TikTok, a bank employee called out a customer for filing 26 illegitimate chargebacks in just 7 months. This points to a broader, well-established trend in chargeback abuse. What can banks and merchants do to discourage this behavior in the future, and how can improved collaboration between companies and banks streamline these processes moving forward?

Viral Video Gives Insight Into Friendly Fraud Consequences as Scammer Taken to Task Over Chargeback Abuse

There are several valid reasons why a cardholder might dispute a credit card charge.

Consumers often file chargebacks if their card was hit with a charge they didn’t authorize, for instance. They may also do so for items they ordered and never received, for charges that were made incorrectly, or for the wrong amount. 

Chargebacks don’t exist without context, though. Each dispute takes revenue away from the merchant in question. The bank also needs to devote their own time and resources to investigating the claim. Plus, if there’s a cardholder who repeatedly abuses the chargeback process, it could cause broader, long-term problems for the bank which issued that abuser a card.

“It’s Called Merchant Abuse.”

The privilege of contesting charges on your credit card offers can easily be manipulated by bad actors, as illustrated by a recent TikTok video.

The video, uploaded by @that_disney_mom and viewed by over a million people, showcases a customer service call between a bank representative and a cardholder unable to use their credit card. In the video, it's revealed that the customer was notified by her bank of the closure of her accounts due to her having filed an excessive 26 chargebacks in the past seven months.

“Ma’am, you’ve got nine [chargebacks] just from Etsy alone in the last three months,” @that_disney_mom says. In the video, she labels the behavior explicitly as “merchant abuse.” She then informs the caller that her account is closed due to her activity, and advises other users against becoming “a chargeback Karen.”

The details of the customer’s situation are unclear, as the video shows only one side of the call. However, lodging a fraudulent chargeback is considered "fraud," carrying potential repercussions. And, the situation described by @that_disney_mom during the call sounds like textbook chargeback fraud.

This kind of fraud happens when customers make a purchase, receive their goods or services, and then ask their bank to reverse the charge, falsely claiming the transaction was unauthorized or the product never arrived.

The ease with which some consumers have been able to manipulate this system for financial gain has led to an increasing number of these fraudulent claims. But, as we see in the video, this is one serial scammer that is finally seeing consequences for their actions.

“I can’t reissue you the cards because the bank is literally done doing business with you. They have canceled every single thing,” she elaborates in the video. “And it says that you currently owe $2,203 back on the credit card alone that you are required to pay back legally, otherwise it’s going to go to collections.”

“I put a note on your account that you want it to be reopened, but as of right now, I cannot reopen or I can’t reissue anything, because all your accounts have been closed and your cards canceled,” she says. “That’s how that works.”

The TikTok Community Chimes In

@that_disney_mom is not alone in her disbelief at the blatant case of chargeback fraud. Other users weighed in in the comments, sharing their stories of being victimized by chargeback fraudsters.

“As an Etsy seller I am so glad they are cutting down on people playing these games,” said user @hailey_1986. “It does cost a lot of time and money across multiple companies.”

“As an Etsy seller, this chargeback stuff is RAMPANT and Etsy doesn’t take our side,” another user writes. “We need this kind of support!”

“The chargebacks are ridiculous. I work in travel and we had someone do a charge back because they claimed their Louis Vuitton carryon was stolen in the airport in Destini. They went on vacation…” says user @jillifer136.

These and other outraged comments point to a clear problem in the payments space. Chargeback fraud is a real and growing threat. So, what’s being done to address it?

The State of Chargeback Fraud

As this problem has continued to escalate, the call for decisive action has become louder and more urgent. Retailers especially, are feeling the pinch, in terms of lost revenue and also dealing with the headache of additional procedures that come with disputing these claims.

On the other side, banks and credit card companies are trying to walk the tightrope. They need to protect their customers while trying to weed out those taking advantage of the system. The explosion of online shopping, especially since the covid pandemic, has only made this issue more pressing, spotlighting the need for a unified strategy to tackle chargeback fraud head-on.

There have been moves to combat this issue, including setting stricter rules for requesting chargebacks, deploying advanced fraud detection tech, and stepping up efforts to educate consumers about when a chargeback is really warranted. Yet, the problem lingers, pointing to a need for continued innovation and perhaps a rethink of current strategies to more effectively stem the flow of chargeback fraud. 

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This ongoing struggle highlights a broader challenge in the digital marketplace: striking the perfect balance between safeguarding consumer rights and preventing the abuse of systems meant to protect them.

What Else Is Required?

While the increasing willingness of banks to take a stand against blatant chargeback fraud is a positive development, it's just one piece of a larger puzzle that needs solving. The fight against chargeback abuse calls for the establishment of industry-wide standards that clearly delineate what constitutes valid and invalid uses of chargebacks. 

Having a set of universally accepted rules would provide merchants, banks, and consumers with a common understanding of what actions merit a chargeback. This is especially important as the digital marketplace continues to expand, bringing with it a wider variety of transaction types and consumer interactions.

Clear standards would help reduce confusion and disputes over what constitutes a legitimate reason for a chargeback. This would ultimately lead to fewer fraudulent claims.

Moreover, standardized guidelines would also facilitate a more efficient resolution process for disputes. When all parties involved have a shared set of criteria to refer to, it streamlines the decision-making process. This makes it quicker and more straightforward to determine the validity of a chargeback claim. This efficiency not only benefits the consumer and the merchant; it also reduces the operational strain on banks and credit card issuers tasked with adjudicating these disputes.

Increased Collaboration is Required

Creating and implementing the above standards will require a concerted effort from all stakeholders within the eCommerce ecosystem. Regulatory bodies, industry groups, and consumer advocacy organizations will need to collaborate closely to develop these guidelines. This collaboration should aim to protect consumer rights while also ensuring that merchants are not unduly burdened by fraudulent chargebacks.

In addition to standards, there's also a need for ongoing education of consumers about the proper use of chargebacks. Many consumers may not fully understand the impact that fraudulent chargebacks can have on businesses, or they may not be aware of alternative dispute resolution mechanisms available to them. An informed consumer base is less likely to misuse chargebacks, contributing to a healthier transaction environment for all.

Ultimately, while increasing actions against chargeback fraud by banks are a step in the right direction, the establishment of clear, industrywide standards for the use of chargebacks is essential. Coupled with enhanced consumer education, these measures can significantly reduce chargeback fraud, benefiting businesses, consumers, and financial institutions alike.

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