Fighting Friendly Fraud: A Guide to Disputes and Chargebacks

Whether you’re a seasoned seller or a new auctioneer, “friendly fraud” presents a serious concern for all e-commerce sellers. Fighting illegitimate chargebacks might seem impossible at first, but there are several preventative measures sellers can take to protect themselves and their consignors. 

 

According to stripe.com, “Friendly fraud—also known as ‘first-party misuse’ or ‘first-party fraud’—occurs when a legitimate cardholder makes a purchase, but then disputes it at a later date. This can either be accidental, because they didn’t recognize the transaction on their statement, or deliberate…” (Stripe.com). 

 

Sellers can read all of Stripe.com’s information on card disputes by CLICKING HERE.

 

In general, chargebacks/disputes were designed to protect consumer interests against fraudulent business practices. In short – a chargeback is a forced refund involving all of the following participants: 

 

• The cardholder (the bidder) 

 

• The card network (visa, mastercard, etc) 

 

• The issuing bank (the one sending the money) 

 

• The acquiring bank (the seller’s bank)

 

• The payment processor (stripe.com or authorize.net)

 

• The payment gateway (either via stripe.com or indicated in the seller’s authorize.net account) 

 

Depending on the issuing bank, the seller might not receive notification that a buyer requested a chargeback until after the funds are withdrawn from the seller’s bank account, plus any related fees. 

 

Fighting a chargeback requires the seller to gather evidence against the customer and prove that the charge was not fraudulent. This could be email correspondence with the customer, invoices, signatures obtained at pick-up, order forms, delivery notifications, etc. 

 

Fighting a buyer’s claim to initialize a chargeback reversal (or dispute reversal) is time consuming and often difficult. Though chargeback reversals are seldom granted, there are ways to successfully fight them. We have compiled a list of prevention techniques to verify purchasers and generate an evidence paper trail in case a bidder dispute occurs. 

 

Terms and conditions

 

Sellers with clearly stated policies always have an advantage when dealing with bidder issues. AuctionNinja encourages all sellers to provide as much detail as possible regarding their policies and procedures when it comes to item dissatisfaction. 

 

Though the authorize terms and the terms and conditions protect the seller from some instances of buyer’s remorse or intentional fraud, policy isn’t enough to stop bidders from disputing charges. With that being said, the terms and conditions are an essential part of creating a guide for handling a myriad of bidder issues. 

Who has the goods? 

 

Sellers who facilitate local pick-up sales will note more opportunities to take preventive measures, though shipping-only sellers can achieve similar outcomes. For example, during a pick-up, sellers should always require all bidders to sign invoices. Sellers are allowed and encouraged to require photo ID at the time of auction pickup— especially for high priced items. Auctioneers should take a picture of the ID and the signed invoice side by side with their mobile device. For high ticket items, sellers can ask bidders to bring the card that they used to purchase the item to verify all details (name and credit card information). 

 

For shipping only sales/shipped goods, sellers should always opt in for signature confirmation. This is easy with AuctionNinja’s integration with USPS. Sellers can also request signature confirmation on a number of third party carriers. Here are some helpful links: 

 

Click here for FedEx signature confirmation information.

 

Click here for UPS delivery confirmation information.

 

Click here for Pirate Ship signature confirmation information.

 

Most third party shippers offer insurance coverage for lost or stolen goods up to a certain amount. 

 

In addition, for high ticket purchases, sellers can request bidders to email an image of their photo ID along with a signed invoice. Make sure that all information matches the information on the account and the shipping address. This ensures an extra layer of identity verification for large volume purchases. 

How customer service can prevent friendly fraud: 

 

When fighting a dispute, one of stripe.com’s first questions for the seller is: 

 

Did you offer to refund the item in exchange for a return? 

 

If the answer is no, the seller is in danger of losing the dispute. 

 

Refusing to refund the buyer’s money in exchange for a returned item gives the buyer grounds to dispute the charge. After all, if a buyer claims that an item was faulty, or misrepresented, card companies settle the dispute in favor of the buyer. With that being said, it’s often in the seller’s best interest to refund the buyer in exchange for the item(s) in question rather than escalating the issue to a dispute. 

Since the bidder would necessarily dispute the entire charge with their card holder, choosing not to refund specific items would mean the entire order is at risk.

 

In general, talking to bidders about their issues with any given product will help prevent unintentional friendly fraud. 

What bidder’s might not know about chargebacks: 

 

In general, chargeback fees pile up and the cost is fairly substantial. Though it varies for every issuing bank, if the buyer loses the dispute and a chargeback reversal is initialized, the buyer is responsible for the chargeback fees. Furthermore, buyers who request fraudulent chargebacks can have their credit cards and bank accounts shut off by the issuing bank. 

 

If a seller on AuctionNinja is victimized by friendly fraud, and the bidder never attempts to make contact prior to executing the dispute, the seller can contact AuctionNinja for advice on next steps. We encourage sellers to block bidders who commit friendly fraud, and alert the AuctionNinja team ASAP. 

Reference links: 

 

https://chargebacks911.com/chargebacks/

 

https://chargebacks911.com/faq/

 

https://chargebacks911.com/prevent-chargebacks/

 

https://stripe.com/docs/disputes/prevention/fraud-types

 

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