False Chargeback Claims

June 30, 2022 | 11 min read

False Chargeback Claims

What Happens if You File a False Chargeback Claim?

When cardholders fall victim to fraud or abuse, they can turn to the chargeback process to recover their funds. But what happens when consumers start abusing the system by filing false chargeback claims or credit card disputes?

In this article, we break down the dispute process, and discuss the impact of false credit card dispute claims made by cardholders. Most importantly, we’ll answer the question: can you get in trouble for falsely disputing credit card charges?

How the Dispute Process Works

To understand this, let’s cover the basics first.

A “chargeback” happens when a cardholder contacts their bank and disputes a charge appearing on their statement. This could be a case of card fraud, in which a criminal uses the customer’s credit or debit card without authorization. Or, the customer might claim that the merchant made false promises, and that the goods or services provided didn’t live up to the seller’s description.

The bank will investigate the cardholder’s claim, looking at the evidence at hand. The bank will then either reverse the charge, or deny the cardholder’s request.

Learn more about chargebacks

Of course, the merchant has the option to fight back if they believe a customer’s claim is invalid. This happens through a litigation-based process known as representment.

Using the representment process, the merchant gathers evidence and resubmits the transaction to the bank. The issuer then examines this evidence and issues a ruling, either upholding the original transaction or filing a second chargeback.

Learn more about representment

Chargebacks serve as an essential consumer protection mechanism. They give cardholders a way to recover their money if they become victims of fraud or deceitful merchant practices. At least, when used as intended.

Unfortunately, the system is subject to abuse. In many cases, the cardholder might not even realize they’ve done anything wrong.

What Constitutes a False Chargeback Claim?

Cardholders are entitled to chargebacks in cases of criminal fraud or merchant abuse. So, to put it bluntly, chargeback abuse occurs if a buyer files a chargeback claim that’s not tied to one of those valid reasons.

For example, if a buyer disputes a purchase because they simply don’t like what they paid for, that would be a case of chargeback abuse. The same applies if the buyer didn’t fully understand or comply with the merchant’s terms, but files a chargeback claiming the terms were unfair anyway.

Chargeback abuse is also known as first-party fraud, or “friendly” fraud. This describes any situation in which a cardholder files a false chargeback claim without justification. It could be due to a genuine misunderstanding, or because the cardholder simply felt a chargeback would be easier than requesting a return.

In some cases, a buyer might actually make a purchase, planning to file a chargeback later. The buyer is using the chargeback process to “get something for free.” This also falls under the mantle of friendly fraud.

Learn more about friendly fraud

In the end, it doesn’t really matter whether the buyer filed a false chargeback claim on purpose, or by accident. Either way, the result is the same: the merchant loses revenue and merchandise, plus sees added fees, higher costs, and other long-term threats to the business.

Merchants aren’t the only ones on the hook for friendly fraud, though. Cardholders pay a price for chargeback abuse as well.

Merchants: you can stop chargebacks and protect your relationships with buyers. The answer is just a click away.

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Can you Get in Trouble for Disputing a Charge?

Yes. Cardholders can face consequences for abusing the chargeback process.

Can you go to jail for disputing charges? It’s technically possible, as friendly fraud can be considered a form of wire fraud. However, this only happens in extreme cases. In general terms, it’s practically unheard of for cardholders to end up behind bars for committing friendly fraud.

If the dollar value is high enough, a merchant may take a cardholder to civil court over a dispute. Again, though, these are extreme cases. Buyers rarely face any legal consequences for filing false chargeback claims.

Even if they won't end up behind bars for filing false chargebacks, buyers could still face serious consequences, even with a low-dollar value. They could experience:

Blacklisting

Consumers who file a dispute may be added to a chargeback blacklist by the merchant, prohibiting that customer from making future purchases. This will be a problem if the customer is a regular user of the merchant’s services. Sony, for example, suspends users from the Playstation Network if they file a chargeback. The rationale is that the account:

  • Has been compromised by identity theft and should be closed to prevent additional fraudulent purchases.
  • Belongs to a friendly fraudster with whom the company doesn’t want to do future business.

Users whose accounts have been suspended are unable to access any of the games or other digital content tied to their account.

Lack of Recourse

Let’s say a consumer experiences buyer’s remorse over a purchase. The buyer should work through the proper channels by submitting a merchant return. However, they file a false chargeback claim instead, believing it will be faster and easier. In that situation, the buyer has just committed friendly fraud as a matter of convenience.

If the merchant disputes the chargeback and wins, the customer will have no other way to recover the money. The buyer could have simply requested a return from the merchant and had the money refunded. However, the merchant might refuse to accept a return now that the cardholder’s been busted for filing false credit card dispute claims. There’s not much that can be done at that point.

Loss of Banking Privileges

When a bank files a chargeback, the bank is essentially vouching for the customer. The bank dedicates its resources to recover the customer’s money, believing that the individual is a victim and deserves to be compensated.

If buyers are caught committing friendly fraud, though, the bank will stop seeing them as a victim, and more as a liability. The issuer might close the account in question as a result, leaving the cardholder without a bank to conduct business.

Damage to Credit Score

Credit reporting agencies will notice if a consumer loses banking privileges, or if they lose a line of credit due to false chargeback claims.

An individual’s credit score is based on many factors, including the total credit available at any time and the ratio of available credit to the user’s total credit line (called a credit utilization ratio). If a consumer’s credit account is closed due to friendly fraud activity, that will negatively impact the person’s credit utilization ratio. As a result, their credit score will drop precipitously.

None of the above consequences are required by law. The Fair Credit Billing Act of 1974 and other chargeback laws stipulate that consumers need a way to dispute claims. However, the laws mostly leave it up to the banks and card schemes to determine the specifics.

Learn more about chargeback rules

When Are You Entitled to a Chargeback?

Most importantly, consumers need to understand that chargebacks should never be confused with a refund. If you simply want your money back for an item or service that didn’t meet your expectations, that’s something you should work out with the merchant directly.

Getting the bank involved might seem easier or more convenient. It really isn’t, though.

As we laid out above, buyers could incur some serious consequences for bypassing the merchant to get their money back. So, one has to have a legitimate reason to involve the bank for a chargeback. That may include any of these situations:

#1 | Fraud

A buyer discovers an unauthorized charge on their account, which they identify as a case of fraud. Note that family members do not count on the list of unauthorized charges. Any instance of so-called “family fraud” will be considered a false chargeback claim.

#2 | Non-Delivery

Orders that were never delivered. Proof will be required here; if the merchant can prove that the item was delivered and the buyer has nothing to refute that claim, they may lose the dispute. We don’t recommend this unless the buyer has proof that an item never arrived, and that the merchant refused to help.

#3 | Defective Merchandise

Merchandise that arrives damaged or defective is not your fault and can be disputed if the merchant is unresponsive or hostile. A good rule of thumb for customers is to try the item first, document the damages carefully along with the packaging in which it arrived, and then record any conversations you have with the merchant.

#4 | Item Not As Described

If the items or goods purchased do not arrive exactly as described by the merchant, you have the right to dispute the charge if the merchant is unhelpful or unresponsive. Again, the bank will require proof that the item was falsely described before they make a determination.

#5 | The Buyer Gets the Wrong Order

If an order arrives, and it isn’t what was ordered at all, then the buyer is entitled to a chargeback. Again, the buyer will need proof that they tried to resolve the situation with the merchant, and that the seller was unavailable or unresponsive.

#6 | Additional or Incorrect Charges

If the buyer paid for more than was ordered, or was charged more than the listed price for an item, they are entitled to get their money back. This could be a simple mistake by the seller, but it could also be a case of merchant fraud.

We can’t state this enough: buyers must try to contact the merchant before attempting a chargeback. Most accidents or mistakes can be rectified with a simple call to the merchant.

This is better for both parties involved. The merchant avoids the hassle of a dispute, and the cardholder gets their money back much faster than they would with a chargeback.

With fraud cases, cardholders should contact the bank immediately to prevent additional losses. In almost all other cases, though, the cardholder must talk directly to the merchant before calling the bank.

The System is Unbalanced

Of course, only a small number of consumers complete purchases with the intent of filing a chargeback later. Most are simply confused about when—or if—they’re entitled to dispute transactions. Furthermore, consumers know even less about the consequences of committing friendly fraud.

In a criminal jury trial, the burden of proof falls on the prosecutor: the accuser must establish guilt beyond a reasonable doubt. In a chargeback, however, the burden of proof is on the merchant; the accused, in this context. In other words, because of the way the chargeback process works, merchants are “guilty until proven innocent.”

Here’s the truth: when it comes to expectations placed on cardholders in these situations, the bar is set remarkably low. The entire chargeback process creates an environment that encourages consumers to file false chargeback claims. As a result, friendly fraud is now the number one reason chargebacks get filed, representing roughly 60% of all disputes.

Although we indeed need standardization in the chargeback process, consumers still need to use the chargeback process wisely. Filing false credit card dispute claims means risking some serious consequences.

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