23% of Consumers Admit to Committing ‘Friendly Fraud’ When Disputing Transactions

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What happenedA whopping 23% of consumers admitted to disputing purchases as fraud, even though they received the item and were satisfied with the purchase, according to Sift’s Q4 2022 Digital Trust & Safety Index. This is commonly known as friendly fraud or first-party fraud, because the cardholder is the one committing fraud. The average value of a chargeback was $192.53 in 2022. Merchant Fraud Journal expects that chargebacks will cost merchants over $100 billion in 2023.So whatCredit cards and debit cards offer a dispute process for cardholders to report issues with transactions. Legitimate reasons to file a dispute include:
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Unauthorized charges: Someone used your credit card without your permission.Billing errors: A merchant mistakenly charged you. For example, you canceled your gym membership, but it was charged anyway the next month.Problems with a purchase: This covers orders that aren’t delivered, quality issues, and other purchase issues.Some consumers take advantage of these protections to get fraudulent refunds. “As the economy cools down from historic highs, consumers are looking to save money however they can, luring many to resort to first-party fraud,” said Sift Trust and Safety Architect Brittany Allen in a press release announcing the survey results.Friendly fraud is a source of frustration for businesses, as they lose money when customers file chargebacks. It also affects shoppers, because merchants need to raise prices to account for fraudulent disputes.Visa has announced it will update its dispute program on April 15, 2023 to help merchants fight friendly fraud. While this is designed to limit fraud, it’s possible that changing the dispute process to help merchants could make it harder on consumers with legitimate card disputes.Now whatThe dispute process that credit cards and debit cards offer is a valuable protection for consumers. If you’re the victim of fraud, or there are problems with your purchase, you could get your money back. But it’s important to know when and how to dispute a charge.If you spot an unauthorized charge on your credit card, first double check to confirm that it’s fraud. Business names on a credit card statement don’t always match store names. Sometimes legitimate purchases look like fraud for this reason. If you’re sure that it isn’t a purchase you made, that’s a valid reason to file a dispute.For billing errors and problems with a product, contact the merchant first to see if you can resolve the issue with them. Some consumers don’t realize this, but unless it’s fraud, you’re supposed to reach out to the merchant before disputing a transaction. If you and the merchant can’t come to an agreement, that’s when you can file a dispute and let your credit card company take the lead.Top credit card wipes out interest until 2024If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy. 

What happened

A whopping 23% of consumers admitted to disputing purchases as fraud, even though they received the item and were satisfied with the purchase, according to Sift’s Q4 2022 Digital Trust & Safety Index. This is commonly known as friendly fraud or first-party fraud, because the cardholder is the one committing fraud. The average value of a chargeback was $192.53 in 2022. Merchant Fraud Journal expects that chargebacks will cost merchants over $100 billion in 2023.

So what

Credit cards and debit cards offer a dispute process for cardholders to report issues with transactions. Legitimate reasons to file a dispute include:

Unauthorized charges: Someone used your credit card without your permission.Billing errors: A merchant mistakenly charged you. For example, you canceled your gym membership, but it was charged anyway the next month.Problems with a purchase: This covers orders that aren’t delivered, quality issues, and other purchase issues.

Some consumers take advantage of these protections to get fraudulent refunds. “As the economy cools down from historic highs, consumers are looking to save money however they can, luring many to resort to first-party fraud,” said Sift Trust and Safety Architect Brittany Allen in a press release announcing the survey results.

Friendly fraud is a source of frustration for businesses, as they lose money when customers file chargebacks. It also affects shoppers, because merchants need to raise prices to account for fraudulent disputes.

Visa has announced it will update its dispute program on April 15, 2023 to help merchants fight friendly fraud. While this is designed to limit fraud, it’s possible that changing the dispute process to help merchants could make it harder on consumers with legitimate card disputes.

Now what

The dispute process that credit cards and debit cards offer is a valuable protection for consumers. If you’re the victim of fraud, or there are problems with your purchase, you could get your money back. But it’s important to know when and how to dispute a charge.

If you spot an unauthorized charge on your credit card, first double check to confirm that it’s fraud. Business names on a credit card statement don’t always match store names. Sometimes legitimate purchases look like fraud for this reason. If you’re sure that it isn’t a purchase you made, that’s a valid reason to file a dispute.

For billing errors and problems with a product, contact the merchant first to see if you can resolve the issue with them. Some consumers don’t realize this, but unless it’s fraud, you’re supposed to reach out to the merchant before disputing a transaction. If you and the merchant can’t come to an agreement, that’s when you can file a dispute and let your credit card company take the lead.

Top credit card wipes out interest until 2024

If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

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