Friendly fraud: When dishonesty meets credit card transactions

As a Business Counsellor I have heard from small business owners who have lost merchandise, lost revenue, and paid excessive processing fees all due to fraudulent transactions. Friendly Fraud is a payment industry term used when a customer makes a purchase with their own credit card, receives the merchandise and then files for a chargeback. A chargeback is when the credit card company reverses the transaction in favor of the customer as a result of the customer suggesting there was fraud or disputing the original transaction. Friendly Fraud usually involves deliberate dishonesty and outside of the payment industry this is simply another form of shoplifting.

Did you know that chargebacks can happen up to two years after a sale? That often means timely reporting of this type of fraud is nearly impossible and sales are basically reversible for two years after they are made. To add salt to the wound, in addition to the initial processing fees the merchant is also charged processing fees when the transaction is returned.

I think unless you have been experienced Friendly Fraud, it is impossible to understand the impact it has on a small business owner:  the stress, the frustration, the time and the money lost.  There is a misconception that transactions like this are victimless crimes but business owners have told us that they feel violated and unprotected against this type of fraud. 

As consumers we want the purchases we make on our credit cards to be protected. In fact our business resources team recently helped a member who made a large deposit for a business expense on the company credit card; only to find out the company selling the product didn’t really exist. In this case, the member was able to create a chargeback on their credit card and get the deposit back.  This is not Friendly Fraud. This is consumer protection. 

The Friendly Fraud I am referring to is situations where ill intent was planned from the start.  A member that contacted me shared a story where his client ordered custom orthotic shoes and decided after wearing them for a full year without complaint he was no longer satisfied and reported the transaction as a service dispute to his credit card. His credit card company charged back the sale to the merchant with no questions or investigations into the situation. The customer had not once contacted the merchant to express any discontent with the service or product.  The small business owner was left powerless and had to absorb a significant monetary loss.

Don’t forget, Business Counsellors are always here to help. If you have questions about scams, small business fraud or want to discuss ways to recognize, reject and report fraud please call us.

Jocelyn Rhindress

Who is Jocelyn?

Jocelyn Rhindress is the Regional Team Leader of Business Resources for Atlantic Canada. In her more than her six years with CFIB Jocelyn has assisted thousands of members with their business inquiries. Her compassion for entrepreneurs started at a young age. Jocelyn grew up watching both her grandfather and father run their own small independent businesses where she witnessed both the joys and struggles that entrepreneurs face on a regular basis.

Jocelyn holds a Bachelor of Commerce in Marketing and Economics from Mount Allison University and also has a Certificate of Human Resource Management from Dalhousie University Continuing Education. Jocelyn thoroughly enjoys finding answers, solving problems, giving advice, and supporting CFIB members. She is proud to be a part of CFIB where she promotes the vision to be the most courageous, connected and influential voice committed to the growth of Canadian Entrepreneurs. Feel free to contact Jocelyn or her Business Resource colleagues with any business question, concern or issue you may be facing. Help and support is just a phone call or email away.