| Credit card disputes, known as chargebacks within the | | | | and dispute charges on top of it. This one is the most |
| merchant processing industry, are the bane of internet | | | | disgusting and clearly criminal and fraudulent of all |
| merchants worldwide. As an author who has worked | | | | chargebacks, but thanks to credit card companies' |
| hard to create my books and products and build a | | | | "dispute any charge for any reason" crap it's becoming |
| business to market them, few things are as | | | | more and more common. In this case, provide a |
| disappointing and frustrating to me as receiving notice | | | | transaction receipt showing that you've already issued |
| of a new chargeback on my merchant account. | | | | the credit to the customer. You'll almost always win |
| I've frequently searched the internet for advice on how | | | | this form of chargeback, but if for some reason you |
| to prevent and win chargebacks, but the information | | | | don't, report these people to their local police. What |
| I've found has largely been useless. The problem is | | | | they've done is criminal in most cases. |
| that it addresses the prevention of fraudulent | | | | In all cases where the chargeback is clearly fraudulent |
| transactions, and discusses ways to identify them and | | | | and with ill intent, you also have the option of filing a |
| block them. | | | | report with the customer's local police or sheriff's |
| The problem, however, isn't actual credit card fraud, | | | | department. If the product was delivered via U.S. Mail |
| identity theft, or any of the usual culprits that take the | | | | or to a Post Office box, you may also file a mail fraud |
| blame for chargebacks. In over four years of doing | | | | complaint with the postmaster. I did this to a customer |
| business online and tens of thousands of transactions, | | | | who ordered three products three months apart, and |
| I've had less than ten chargebacks that were the | | | | then pulled chargebacks on all three without returning |
| result of actual credit card fraud - yes, less than ten. | | | | any of them or otherwise contacting us. He also |
| The real problem, and the cause of nearly all of my | | | | refused my certified demand letters. Because he was |
| chargebacks, is so-called "Friendly Fraud" - dishonest | | | | stupid enough to hide behind a P.O. Box, it came under |
| people who order and take delivery of merchandise | | | | the jurisdiction of the U.S. Postal Service and I filed a |
| only to file a frivolous credit card dispute in an attempt | | | | complaint for criminal mail fraud against him (that may |
| to keep the merchandise without paying for it. | | | | sound harsh, but judging by his actions, he probably |
| In the real world, this is known as shoplifting and | | | | scammed merchants on a regular basis and needed |
| everyone knows you will go to jail if you get caught | | | | to be stopped). |
| doing it. On the internet, however, it's a regular and | | | | After you respond to a chargeback, you will get an |
| consistent pattern of behavior for unethical people | | | | answer one way or the other from your merchant |
| who want to rip you off and get something for nothing. | | | | processor. My success rate in the above examples is |
| The problem is escalating thanks to so-called "Identity | | | | about 70%. If you win a chargeback, the customer |
| Theft Solutions" and similar ideas advertised by credit | | | | does have the right to appeal that decision and dispute |
| card companies, which in plain English means "we'll let | | | | again. If that happens, respond with the same |
| you dispute any charge for any reason at all, or no | | | | information and documentation and reiterate your |
| reason for that matter." In the pre-identity theft days, | | | | position. Most of the time, these appeals fail and the |
| credit card companies would only process disputes | | | | decision in your favor will be upheld. |
| that were the result of a lost or stolen card being used | | | | If your rebuttal to the chargeback is denied and it is |
| by someone other than the authorized cardholder. | | | | upheld in the customer's favor, it's time to move on to |
| Nowadays, they'll allow disputes for just about any | | | | the next step - a final demand letter and invoice from |
| reason at all, and the scumbags in our society know | | | | you, mailed directly to the customer. |
| this and are taking advantage of it. | | | | I use a simple form letter that explains to the customer |
| To complicate this problem, many merchants believe | | | | that they have wrongfully and fraudulently disputed |
| that there's nothing they can do about it. They think | | | | charges and are now responsible to me for the full |
| chargebacks are final, and as a result, they don't even | | | | charge amount plus the bank chargeback fees. They |
| respond to the chargeback notices. In reality, you must | | | | are notified that they have thirty (30) days to pay in full, |
| take either one or two steps to fight back and win | | | | and if they do not, they will be placed with a third-party |
| against chargeback customers: | | | | collection agency and their account will be reported to |
| Option #1: Dispute the chargeback with your bank | | | | all credit bureaus as a delinquent collection account, |
| immediately upon receipt of the notice. | | | | severely damaging their credit rating for at least the |
| Option #2: If option #1 fails and the bank upholds the | | | | next seven (7) years. The letter also explains that we |
| chargeback, you have the right to go after the | | | | will no longer accept a return of the merchandise as |
| consumer directly for the amount of the chargeback | | | | settlement for the debt and will only accept payment in |
| plus all other costs you incur as a result, such as bank | | | | full. |
| fees. | | | | The response to this letter will vary, but the people |
| The other issue I'm going to address later in this article | | | | who care about their credit will pay immediately. It's |
| is that of refund fraud: customers who buy a product | | | | amazing how many people think they can get away |
| that is backed by a money-back guarantee, with the | | | | with ripping us off with no consequences, and then |
| full intent to use or copy the product and then return it | | | | immediately mail a check the instant they receive |
| for a full refund. For now, though, let's talk about | | | | notice that their credit score is about to go down the |
| chargebacks. | | | | toilet. With credit standards tightening and the |
| With the possible exception of running a credit check | | | | disappearance of the sub-prime credit market, I expect |
| on each and every customer before shipping | | | | the threat of damaged credit to become even more |
| merchandise - and that's entirely impractical and | | | | effective in collecting these outstanding debts. |
| unrealistic - there is no way to effectively prevent | | | | In addition, at the time I mail these letters, I print the |
| chargeback fraud from taking place. However, as I've | | | | tracking information for each account. Many delivery |
| said, you can win and recover your money in the end. I | | | | services such as FedEx and DHL only keep them on |
| do on well over 90% of my chargebacks and that | | | | file for sixty days, and you'll need to have them |
| number continues to rise as I become more | | | | available for the next phase of this process, so print |
| experienced in playing the chargeback game. | | | | (or .pdf) them and file them away with the copies of |
| First of all, I'm going to run through all the things you | | | | the letters you've mailed. |
| need to have covered in advance if you expect to | | | | After those thirty days have passed, it's time to take |
| win your "friendly fraud" chargebacks: | | | | the customers who still haven't paid and send 'em to |
| 1. You must use Address Verification Service (AVS) | | | | collections, which will also cause a collection account to |
| on your merchant account and decline orders which | | | | appear on their credit reports, which will severely |
| do not provide a valid billing address (contrary to | | | | damage the customer's credit rating and prevent them |
| popular belief, you don't necessarily have to ship to the | | | | from getting credit and subsequently ripping off other |
| billing address - I allow orders to ship to other | | | | creditors and merchants. And, if they buy or refinance |
| addresses, and none have resulted in chargebacks or | | | | a house, the title company won't allow the deal to |
| other fraudulent transactions - but you must have | | | | close until all outstanding collections are paid off, which |
| AVS active and must decline orders from customers | | | | will greatly increase your odds of getting paid, even if |
| who cannot provide a valid billing address). | | | | it's down the road. |
| 2. You must require card security codes (commonly | | | | This will also further motivate customers to pay. A |
| known as CVV and some other acronyms) from | | | | paid collection account on a credit report is still a |
| customers and decline orders which provide either no | | | | negative entry, but it's better than an unpaid account. |
| code or an invalid code. Make sure you set up your | | | | Next time they are denied for a credit card, car loan, |
| shopping cart and/or payment gateway to accept | | | | mortgage, cell phone, or need to pay a hefty deposit |
| orders from credit cards that do not have security | | | | for utility services or cable TV - you name it - all |
| codes, as there are many outside the U.S. | | | | because they tried to rip you off, your odds of getting |
| 3. Accept American Express. This may sound like an | | | | paid go up dramatically. |
| odd suggestion, and many merchants don't accept | | | | If you need a referral to a good collection agency, |
| them due to higher processing fees, but Amex has the | | | | e-mail me. They're cheap, they charge a flat rate |
| most fair chargeback process and I've won 100% of | | | | rather than a percentage of the accounts, and they |
| my chargebacks with them that I've responded to. | | | | report to all major credit bureaus. |
| They give you the last word and objectively consider | | | | Professional deadbeats will attempt to dispute the |
| your side of the story and your documentation, unlike | | | | collection account, either directly with the collection |
| some Visa/MC processors who will side with the | | | | agency or with the credit bureaus, in an attempt to get |
| customer all the time (if you're stuck with one of these, | | | | it off their credit reports. This is where it's vital to have |
| change processors; e-mail me if you need a referral). | | | | that tracking information available. Your collection |
| The number of American Express cardholders | | | | agency, in compliance with Federal law, will give you |
| continues to rise, which means less chargebacks for | | | | about ten days to respond with documentation proving |
| us. | | | | that the customer actually owes you the debt. You will |
| 4. You must use a trackable shipping service, and | | | | need to send them the original transaction or shopping |
| preferably one that obtains a delivery signature. | | | | cart receipt, a copy of the tracking/proof-of-delivery, |
| Note to sellers of electronic products: Without some | | | | and a copy or copies of the chargeback |
| form of proof-of-delivery, you will have a needlessly | | | | documentation showing that the customer did indeed |
| high refund rate, you will have zero chance of winning | | | | hit you with a chargeback. With this information, the |
| chargebacks, and you will not have the documentation | | | | customer's dispute(s) will be denied, the account will |
| available for your collection agency to verify disputed | | | | stand, and it will continue to appear on the customer's |
| accounts (I'll cover that later). If you sell dowloadable | | | | credit reports. |
| products such as e-books, software, and so on, you | | | | If this approach makes you nervous or seems harsh, |
| *must* also ship something tangible such as a | | | | stop that thinking right now. You have every right to do |
| CD-ROM copy, with tracking and preferably with a | | | | this under the law, as well as both morally and ethically. |
| delivery signature. | | | | Customers who buy products and then slap the |
| This also has the effect of dramatically reducing | | | | merchants with unjustified chargebacks are the lowest |
| refund rates on e-products, usually to less than 2%. | | | | scum of society and cost honest businesspeople like |
| People simply don't go to the hassle of returning a | | | | you and me a huge amount of money. It is your |
| product unless they really want their money back, | | | | obligation to send these deadbeats to collections and |
| unlike customers of digital products who can simply | | | | get the account on their credit reports in order to |
| demand a refund without returning anything and usually | | | | protect other creditors from them - if they get credit, |
| while continuing the use of your product, for free - for | | | | they're just going to defraud and steal some more, and |
| this reason it's very important to use some type of | | | | it's your job to make sure that doesn't happen. |
| digital rights management with your e-products. | | | | Once you place delinquent accounts with collections, |
| (If you sell e-products and are not willing to ship | | | | more and more will start to pay up as soon as they |
| something tangible, you might as well throw this article | | | | receive collection letters and realize their credit and |
| in the trash because I cannot help you if you don't | | | | financial health is at stake; in other words, they'll know |
| have proof-of-delivery available for each and every | | | | your threat to ding their credit in your final demand |
| customer.) | | | | letter was real, you were not bluffing, and now it's time |
| In addition, you'll need to have your return policy clearly | | | | for them to either pay up or suffer for the next seven |
| articulated on your website (I don't advocate the | | | | years in the form of denied credit and higher interest |
| inclusion of return labels with products because then | | | | rates. |
| you're just encouraging people to refund). If you have | | | | On the subject of refunds, this can be an even bigger |
| a time limit on your return policy, say so. If you impose | | | | problem than chargebacks. The internet is plagued with |
| restocking or processing fees, say so. If products must | | | | people who look for products offering money-back |
| be in new and undamaged condition, say so. | | | | guarantees, especially information products. These |
| You should also have a chargeback policy on your | | | | thieves will buy your product, copy it as soon as they |
| website. Mine is very clear - customers who pull | | | | receive it, and immediately return it for a refund. |
| chargebacks *will* be reported to all major credit | | | | On the bright side, the reality is that you must offer a |
| bureaus as a delinquent collection account. End of | | | | money-back guarantee in order to maximize your |
| story. Even if they pay, they will still have a paid | | | | sales. The increase in sales will far, far outweigh any |
| collection account on their credit for at least seven | | | | losses due to refunds. Having said that, there are |
| years; this is an extremely strong motivator against | | | | steps you can take to keep the serial refunders to a |
| chargebacks and will be your primary weapon in | | | | minimum: |
| motivating people to pay after disputing directly with | | | | 1. DO NOT include return labels, either postage-paid or |
| your merchant bank fails. It's also perfectly legal as | | | | not, with your products. While some may see this |
| long as the information you report to the credit | | | | practice as "good customer service," all you're doing is |
| bureaus is up-to-date and accurate. | | | | encouraging dishonest customers to return your |
| Which brings me to my next point: How to respond to | | | | products for a refund. If you were a general, you |
| chargeback notices that you receive from your | | | | wouldn't supply your enemies with weapons, would |
| merchant processor. | | | | you? Then why would you provide serial refunders |
| For starters, you need to make sure you receive | | | | with tools to help them in their ripoff game? |
| these notices on time. Mail is not an option - banks give | | | | 2. DO NOT pay for or reimburse shipping charges to |
| you a very small window of time to respond and you | | | | return products to you. Again, why empower the |
| may miss it if you have to wait for the notice to arrive | | | | enemy? If someone wants to return your product for |
| in the mail, and if you're traveling you won't get it at all | | | | a refund, let them pay their own postage. |
| in time. So, contact your merchant account provider | | | | 3. Only refund the price of the product itself, not |
| and get set up for either e-mail or fax notices, and use | | | | shipping and handling charges. You can't recoup those, |
| an eFax account that sends them directly to your | | | | and the customer did get the opportunity to review |
| e-mail. This will give you plenty of time to respond. If | | | | your product (and has probably copied it) so it doesn't |
| your merchant account provider does not have this | | | | make sense for you to pay for those charges. |
| capability, switch to one that does. | | | | 4. Impose restocking fees on returned products. This is |
| How you specifically respond will depend on the nature | | | | well within your rights as long as they are clearly |
| of each chargeback. Here are examples of the most | | | | spelled out in the return policy posted on your website, |
| common kinds and how I successfully respond to | | | | which few, if any, customers read before ordering. A |
| them: | | | | restocking fee may cover your cost of goods and will |
| 1. "I never received the product." I include a copy of the | | | | discourage customers from returning the product, |
| proof-of-delivery tracking, a copy of the transaction | | | | especially when they must also cover the cost of |
| receipt showing a positive AVS (address verification) | | | | shipping on top of it. |
| and card code match, and any customer support | | | | 5. Impose penalties for failure to follow the return |
| tickets or e-mails from the customer that would prove | | | | instructions. For example, even though my return |
| they did indeed receive the product. | | | | instructions are provided to customers in three |
| 2. "I returned it but didn't get a refund." If the customer | | | | separate places (on my website, in the e-book they |
| never returned the product to you and is trying to | | | | download, and in the print book that is shipped to |
| scam you, simply say so in your response and request | | | | them), a small percentage of customers never read |
| tracking showing proof-of-delivery to your correct | | | | them and simply return the product to my out-of-state |
| return address. | | | | fulfillment house rather than to my office. This results in |
| If the customer returned the product outside of your | | | | a return processing fee being charged by my fulfillment |
| return period, say so and include a copy of your return | | | | house, as well as added time and hassle in receiving |
| policy in your response. | | | | the returned item. As a result, customers who fail to |
| 3. "I was dissatisfied" or "product not as described." | | | | follow the instructions have a fee deducted from their |
| This is a weak excuse for a chargeback because if | | | | refund amount. This is only fair because it takes my |
| someone is not satisfied with your product, the correct | | | | staff extra time to process these, and customers |
| procedure is to return it for a refund, not to keep it for | | | | should be held responsible for the extra fees my |
| free via a chargeback. Provide a copy of the | | | | fulfillment house charges for these improper returns. |
| proof-of-delivery tracking, a copy of the transaction | | | | 6. This is very important: NEVER allow a customer to |
| receipt showing positive AVS and card code matches, | | | | purchase after he or she inquires about your |
| a copy of your return policy, and a statement | | | | money-back guarantee. BAN THEM! After about a |
| explaining that the customer has a right to a refund | | | | year of selling my products online, it occured to me |
| and that you'll be happy to provide one if they'd return | | | | that fully 100% of customers who called or e-mailed in |
| the product; however, unless and until they return the | | | | advance to verify that a money-back guarantee |
| product, no credit is due. People who do this are | | | | existed returned the products for a refund almost |
| generally trying to steal the product from you, so fight | | | | immediately after receiving them! I now ban customers |
| hard on these. | | | | who inquire about the money-back guarantee, and this |
| 4. "I cancelled my order but they shipped it anyway." | | | | has really cut back on returns and the lost money that |
| My website terms & conditions explain that once | | | | goes along with them. Remember, you reserve the |
| an order is placed, it goes out to the fulfillment center | | | | right to refuse to do business with anyone, so exercise |
| for shipping and we cannot stop it. You should have | | | | that right to protect yourself from professional |
| the same terms on your website. Again, people who | | | | refunders. |
| do this are generally thieves and ripoff artists because | | | | Hopefully this information will empower you to fight |
| they file the chargeback without ever returning the | | | | back against chargebacks, refund fraud, and the |
| product. Their intent all along was to get the product | | | | dishonest customers who commit them. The only way |
| for free. Provide a copy of the proof-of-delivery | | | | we as merchants and as a business community can |
| tracking, a copy of the transaction receipt showing | | | | put a stop to the ever-increasing "Friendly Fraud" |
| positive AVS and card code matches, a copy of your | | | | chargebacks is to hold the people who initiate them |
| return policy, and a statement explaining that the | | | | responsible, and force them to either pay or suffer the |
| customer has a right to a refund and that you'll be | | | | consequences. If enough merchants follow these |
| happy to provide one if they'd return the product; | | | | steps and punish dishonest customers who make a |
| however, unless and until they return the product, no | | | | regular practice of ripping off honest businesspeople, |
| credit is due. | | | | fraudulent chargebacks will become a thing of the |
| 5. Customers who have already received a refund | | | | past. |