“Friendly Fraud:” An Unfriendly Fact of Life for Business Owners

BBB Consumer Alerts

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Businesses face a growing risk of “friendly fraud.” This type of fraud occurs when a customer tries to get items that they have already received free of charge.

In 2016, according to LexisNexis®, “the average number of monthly fraud attempts has spiked by 33%.” For every dollar of loss, businesses currently spend an average of $2.40 “on chargebacks, fees and merchandise replacement.” In 2016, fraudulent requests for refunds 28% of large e commerce channels.

The most common types of friendly fraud involve cases in which a customer falsely claims they:

  • Never received an item ordered online
  • Received the wrong item ordered online
  • Had their credit card stolen and were charged for items they didn’t order

The customer then demands a refund from the business or issues a charge back on their credit card.

When “friendly” fraudsters are unable to coax reimbursements from a business directly, many then falsely dispute charges with credit card companies. Even though creditors investigate the situation and ask for the business owner’s side of the story before deciding whether or not the business is at fault, the issuing bank will usually withhold payment until the dispute is resolved. Depending on the size of the order, this may have significant impact on business cash flow.

Defending a business against friendly fraud is no easy task, but there are steps to take.

  1. Verify the buyer’s billing address before sending merchandise. Some retailers require that the billing and shipping address match before fulfilling an order. However, some businesses have found that simply paying for an Address Verification Service, which confirms that the billing address matches the address associated with the credit card, is sufficient.
  2. Use a shipper that tracks delivery. Some shipping firms provide tracking information and signature confirmation. Such information can help shed light on whether or not the customer really didn’t receive the goods.
  3. Deactivate or deny access to products. For retailers that do not ship tangible items, but rather items such as downloads or access to sites, a plan for denying access is both prudent and practical.
  4. Clearly state your return policy on your Web site. This includes any product guarantees, time restrictions, condition requirements or fees—such as for restocking.
  5. Be prepared to make your case to the credit card company. Staying organized and presenting a solid case—including records of delivery or reimbursement and your return policy—in the face of a charge back will assist the credit card company, and increase your chances for a favorable resolution.
  6. Analyze sales records. This can help you identify consumers who charge back items on a regular basis, enabling you to decide whether or not to stop doing business with them. Sources: BBB North Alabama, BBB.org, LexisNexis®

BBB New Release: “Friendly Fraud”: An Unfriendly Fact of Life for Business Owners

To learn more, go to 2016 Lexis/Nexis® True Cost of Fraud Study, When Credit Card Disputes Become ‘Friendly Fraud’, 5 Ways to Detect Friendly Fraud, Under friendly fire: What is friendly fraud and why is it getting worse?.

To report a scam, call your BBB at 256-533-1640 or go to the BBB Scam Tracker. To find trustworthy businesses, visit bbb.org.

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