Card Disputes Projected to Jump 40% as Friendly Fraud Persists

Shoppers are reportedly getting increasingly comfortable disputing credit card charges.

That’s because consumers have discovered how easy it is to do so, the Wall Street Journal (WSJ) reported Wednesday (June 19).

Consumers disputed around 105 million charges with U.S. card issuers last year, the report said, worth an estimated $11 billion. That’s up from $7.2 billion in 2019, the WSJ added, citing data from finance industry research firm Datos Insights. That company forecasts a 40% rise in that figure by 2026.

According to the report, consumer advocates argue the trend shows people are wising up to their rights. Federal law lets card holders dispute billing errors, unauthorized/unrecognized charges and transactions for products that were defective or not delivered.

Paul Fabara, Visa’s chief risk officer, told the WSJ that merchants who are the subject of too many disputes are often offering substandard products or services.

And then there’s “friendly fraud.” That’s the term for when cardholders use the process to dispute legitimate charges.

“We, unfortunately, see a growing number of consumers intentionally reporting a legitimate transaction as fraud or disputing the purchase,” said Sarah Grano, a spokeswoman for the American Bankers Association, a trade group.

The report noted that Visa and Mastercard have both updated their policies to help merchants deal with friendly fraud, which accounts for 75% of chargebacks.

As PYMNTS wrote in March, Visa has rolled out what it calls its “Compelling Evidence 3.0” framework, which contains clear guidelines and improved mechanisms for merchants to push back against illegitimate chargeback claims.

Around the same time, Mastercard launched a partnership with Worldpay to help merchants better deal with chargeback disputes.

“Chargebacks have long been a thorny issue for merchants,” PYMNTS wrote in March. “And as transactions become increasingly digitized, chargebacks have in turn become more prevalent.”

In some cases, friendly fraud involves a dispute that stems from a misunderstanding, or buyer’s remorse, with a consumer taking advantage of zero-liability policies to get a refund.

But there is also a more insidious form of friendly fraud, where people intentionally make purchases with the intent of disputing them and recouping the money.

“Friendly fraud can eat into not just a dollar amount but also an operational cost amount to merchants, where if you’re a small business and you’re focusing more time on figuring out how to investigate [friendly fraud], working with your acquirer and your payment facilitator, that is lost time spent away from your business,” Mike Lemberger, senior vice president, regional risk officer for North America at Visa, told PYMNTS CEO Karen Webster in January.