Credit card fraud is a growing business in the U.S.

by The City Wire staff ( 34 views 

Consumers, banks and merchants fall prey to some $11.3 billion in card fraud annually creating chargebacks and losses of $3.4 billion in 2012 for credit card issuers, according to eConsumer Services, an online merchant mediator.

The U.S. is the only country where card fraud is consistently growing. The rise of chargeback fraud is negatively affecting credit card issuers and increasing the costs of services they provide.

“Consumers are failing to realize that chargebacks are no longer an ace-in-hole and come with steep consequences,” said Gary Cardone, co-founder of eConsumer Services.

He said nearly one-third of merchants contest all chargeback claims filed, and 40% of those cases are won by merchants, resulting in an increased number of unhappy customers contacting their banks for answers. In turn, the banks become cost centers for issuers and those costs are then passed down to consumers through increased prices and fees for products and services, Cardone added.

The average time it takes to process a credit card dispute is about 15 minutes, in comparison to the fraction of time it takes to complete the majority of other cardholder services. 

Cardone said chargeback processing is a lengthy manual process because the claim must first be validated – and taking shortcuts on this process can lead to customer dissatisfaction, or may result in the cardholder losing the right to the temporary refund they initially receive.

Local banks recently told The City Wire, they have had to add fraud divisions in recent years because of the rise in debit card usage and scams associated with electronic payments.

When a consumer realizes their debit or credit card has been used to fraudulently purchase something online, they can dispute the charge with their banks in writing. This requires time to physically go into the bank and sign the forms.

The bank can generally reverse the fraudulent charge, but will also investigate any delivery of product with the help of the merchant involved. The merchant is charged-back for the cost of the item and then will often attempt to seek payment directly from the cardholder.

eConsumer notes that there is a growing number of fraud cases that involve products delivered but consumers who say they never received their order. In these cases the merchant is apt to win out, leaving the banks and consumers at odds over the charge. 

PayPal is a popular payment option but it too has been subject to negative publicity on consumer blogs resulting from chargebacks and related fees, when a purchaser and seller are odds over a transaction. As more consumers use PayPal to conduct international business they are also a target for heightened chargebacks.

Sidney Simpson from ShortsnShirtShop notes in an Aug. 26, 2013 blog: “A customer filed a chargeback on Paypal against me after I gave her a partial refund that she agreed to. I submitted all the information to Paypal showing that she agreed to the refund and she decided to go to her credit card company to resolve the issue since Paypal didn't seem to be agreeing with her. She won the case and I was charged a $20 chargeback fee over a $4 dispute.”

Other bloggers said the PayPal resolution process favors buyers not sellers. PayPal said the two most common reasons for reversals or chargebacks occur when a buyer’s credit card number is stolen and used fraudulently or a buyer doesn’t think the seller fulfilled their end of the deal.

When PayPal is notified that a buyer has filed a chargeback against a seller, PayPal emails the seller as soon as possible. Then, the seller can log into their PayPal account and go to the Resolution Center to monitor the status of the case and provide information to help resolve the matter, according to the PayPal website.

When a chargeback occurs, the money that is subject to the chargeback is deducted from PayPal's bank account. In turn, PayPal places a temporary hold on the same amount in the seller's PayPal balance (the funds related to the transaction are frozen).

PayPal encourages sellers to protect themselves against chargebacks by tracking packages, keeping records of payment proof, photos of the items shipped and saving all correspondence with the buyers.