It's Easy to Accidentally Commit 'Friendly Fraud.' How to Avoid This Serious Credit Card Mistake

Kendra Graham -- owner of Kendra’s Gems -- found out that after shipping merchandise to two different customers, they disputed the purchases with their credit card company. Each claimed they had never ordered anything from Graham. 

“It was very frustrating,” said Graham, who eventually resolved both transactions in her favor. She acknowledged that chargebacks are a useful tool if you’ve been wronged, “but in my case, scammers make life difficult for small business owners.”

This scenario, sometimes referred to as friendly fraud, is happening more often. In fact, roughly 3 out of 4 chargebacks filed by cardholders might be cases of friendly fraud, according to data from Visa.

Friendly fraud can include mistakes -- like not remembering you gave your spouse the credit card and disputing their legitimate purchase -- as well as more nefarious intent like fraud and theft.

While the phrase may sound innocent, friendly fraud can lead to serious consequences. The merchant may refuse to do business with you going forward, and the credit card company could close your account, which could damage your credit score.

By understanding valid reasons for disputing a charge and the proper steps to take, you can avoid being flagged for friendly fraud. 

What credit charges can you dispute?

Generally, chargebacks are reserved for unauthorized transactions and errors in billing, either of which can be the result of mistakes, false marketing practices, deception or fraud, according to Mark Shayani, a lawyer with Pacific Attorney Group. 

Thanks to the Fair Credit Billing Act, there is a straightforward process to dispute these kinds of charges. Instead of contacting the merchant for a refund, you can ask your credit card company to reverse the payment to the merchant.

How to avoid friendly fraud

Friendly fraud isn’t necessarily malicious. Many types of friendly fraud are unintentional, the result of miscommunication or an honest mistake.

Some ways to avoid being flagged as a friendly fraud offender:

• Understand return policies. Before making a purchase, review the merchant’s return policy. 
• Contact the merchant first. Attempt to resolve any disputes by contacting the merchant directly before going to your credit card company. 
• Keep receipts and written communications. This can help remind you of purchases and serve as documentation if you do need to dispute a charge.
• Communicate with anyone who has access to your card. A common form of friendly fraud occurs when a spouse or child uses the primary cardholder’s account to make a purchase, but the primary cardholder forgets when they review their statement.
• Lock your credit card. Most credit card companies allow you to lock your card to prevent new transactions. This can be helpful if multiple people have access to one card. 

How to dispute a credit card charge

According to the Federal Trade Commission, you have 60 days from the date of the first bill with the incorrect information to dispute a transaction. 

1. Review your transaction history

You can dispute a charge once it has been posted to your account. Before initiating a dispute, consider who else may have access to your credit card (like a family member or friend).  

2. Contact the merchant

Reach out to the merchant first to fix an error, adjust an amount or get a refund. It may be faster than disputing the charge with your credit card issuer and can help you avoid getting flagged.

3. Gather supporting documentation

If you can’t resolve the dispute with the merchant, collect information that will help substantiate your case, including:

• Emails, chat transcripts, screenshots or voice recordings with the merchants establishing your attempt to resolve the conflict
• Copies of the bill with the transaction 
• Tracking details chronicling the shipment 
• Invoices or contracts 
• Marketing materials detailing the advertised product or service
• Purchase confirmation or proof of cancellation 

4. Contact your credit card company

There are multiple ways to initiate your dispute with the credit card company.

• Online and via mobile app. Most credit card companies offer a quick and convenient process to initiate a dispute on their website or through the mobile app. 
• In writing. You can submit your dispute in writing using the address provided for billing inquiries. Sending a certified letter will ensure you have proof that your dispute was received within the 60-day window. Send copies of any documentation and keep your originals. The FTC provides sample letters.
• Over the phone. You can also dispute a transaction by speaking with a customer service representative. “Keep calm and pleasant toward operators,” Shayani advised. “This might expedite your complaints.” 

While the investigation is ongoing, Shayani says that you can ask the credit card company not to charge interest on the disputed amount.

 5. Monitor the process

Typically, disputes take anywhere from 30 to 90 days. Monitor your account during that time and respond promptly to follow-up questions. Be prepared to provide additional information, if necessary.

What are the possible outcomes of a credit card transaction dispute?

If the investigation concludes you’re not responsible for the disputed charge, the credit issuer should explain -- in writing -- what corrections will be made and refund any interest or fees related to the disputed amount. 

If the credit card company finds that you’re at fault, however, it must tell you in writing what you owe and why you were deemed responsible. You may appeal the decision with the credit card company or file a complaint with the Consumer Financial Protection Bureau.

What can you do if you’ve accidentally committed friendly fraud?

If you discover that you’ve committed friendly fraud, there’s no need to panic. Simply contact your credit card’s customer service department to update them with the new information so it can conclude the investigation. You can continue to pay your credit card bill as normal, although you may be responsible for fees and interest charges that were paused during the investigation.

If the investigation has already concluded in your favor, then you should also contact the merchant directly and make arrangements to pay for your product or service.

What happens if you falsely dispute a credit card charge?

If a credit card company determines that a dispute is fraudulent, whether it was unintentional or otherwise, any temporary credits issued will be reversed and you’ll likely be responsible for fees and interest charges. Repeated friendly fraud cases could cause you additional trouble in the long run.

Vendors and credit card companies may keep internal blacklists of repeat friendly fraud offenders, according to Shayani. The merchant may refuse to do business with you, and the credit card company could potentially put a hold on transactions or require additional documentation for future claims.

Friendly fraud may seem like a minor inconvenience to you, but it can create a financial hardship for vendors and ruin your reputation with them.

After Graham’s experience, she’s become more cautious about repeat business from the customers who committed friendly fraud. 

“I’m leery but I have allowed [one customer] to purchase from me again under a certain dollar amount because I know her,” she said. Graham refuses to accept business from the other person. 

Additional consequences for repeat offenders can include loss of chargeback rights and civil lawsuits that could result in court-ordered payments, Shayani said.

While a single mistake may not lead to the more extreme consequences, it’s important not to abuse the chargeback system. If you’re a repeat offender, a bank may close your card account entirely along with any other accounts you have there. The closed accounts could affect your credit and ability to borrow in the future.

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