Don't be had by credit card fraud
July 19th, 2006 • Posted by Larry Donahue • Permalink
Ah, credit cards. Most of us love 'em as a consumer, and hate 'em as a merchant.
Whether doing business on the Internet or not, credit card fraud is a problem for all businesses, and can impact you no matter how careful you are.
Here are two actual instances of credit card fraud we've heard of over the past few months. Could you find yourself in a similar situation? We'll give you some helpful tips to help reduce your exposure, after these examples.
The Boyfriend's Credit Card
One spa had a regular. For a year, she came in once a month, usually lavishing herself with exotic services and making regular product purchases. One time, she started using her boyfriend's credit card to make her purchases. The spa reluctantly accepted the new credit card — because after all, she was a regular — and they even called the boyfriend who gave them his verbal approval to use the card. This happened for several more months, with some months raking up several hundred dollars of product sales. After 5 months of this, the regular stopped showing up. Soon after, they received chargebacks for all the previous purchases on the boyfriend’s credit card. Sure enough, the boyfriend denied he had ever given permission for the regular to use the card.
The Overseas Purchase
Another spa received a phone call for an over-the-phone purchase of product. Lucky them — it was an order for almost $5,000 worth of product. There was just one catch: The caller was overseas. Nigeria to be specific. He spoke perfect English, and explained that the reason he’s ordering her product, is because he’s an American who can’t get decent products in Nigeria. So, he wanted to order in bulk to last awhile. He even had an American billing address “to prove he’s an American.” The spa accepted the order and shipped the product, only to learn later that it was a fraudulent order using a stolen credit card. The product is hung up in Nigeria, and the spa is out the cost of the product.
These two examples highlight how even discriminating merchants can become the victim of credit card fraud or abuse. Remember the following:
- Consumers can dispute credit card charges (called a chargeback) up to 6 months after their purchase.
- Most banks will immediately take the funds out of your account and charge you a fee for every chargeback, and some will even charge you additional fees to dispute the chargeback.
- It is difficult to dispute a chargeback, and winning depends on a number of factors (Did you imprint or swipe the card? Can you prove it was the card owner that presented the card? Can you prove they received the product or service promised and of the quality agreed to?)
Eventually, you may get caught up in credit card fraud. Don’t get angry or upset. It's the cost of doing business. However, please consider following these suggestions to reduce your exposure to credit card fraud:
- Always ask for identification when accepting credit cards. Make sure the picture, names and signatures match.
- Require people to use their own credit cards (i.e. don’t let someone borrow another’s credit card). Remember the Boyfriend’s Credit Card example.
- Don’t ship product out of the US.
- Don’t ship product to anywhere but the billing address. If the customer really needs the product to be shipped elsewhere, ask questions. Does the other address make sense? I.e. a work address located in another state (doesn’t make sense). If it’s a gift for another, is the order abnormally large? If so, have the customer fax in an order validation, with a signature and copy of their credit card and driver’s license.
- If anything appears out of the ordinary, don’t be afraid to call the issuing bank for the credit card (phone number is always listed on the card), to make sure the credit card is valid and circumstances are appropriate.
What other tips or suggestions do you have to reduce credit card fraud?
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July 29th, 2006 at 8:04 am
We were contacted by a gentlemen in Nigeria inquiring about $800 worth of retail lotions. Luckily we read your blog and were saved!
May 8th, 2007 at 6:46 am
We had a different take on the credit card fraud. We had a customer purchase a gift certificate online for several hundred dollars. The charge was approved and the certificate shipped. Over a month later, we received a chargeback notice saying that the card had been stolen. As luck would have it, the person who had bought the card called to make an appointment for her and a friend the very next day. My husband recognized the name and highlighted the "fraud" client and notified the local police. On the day of their service, the fraud client and her friend were greeted like every other normal client, allowed to change into a robe and were given their facial treatments - in order to actually show a service had been received. As they came out of their first treatments, they were greeted by the police, arrested and escorted off the premises. At the hearing some weeks later, the friend pleaded innocent and paid us for the full value of her scheduled appointments. The customer who fraudulently purchased the gift certificate never showed and was found to have been using stolen credit cards all over town. While the original card was refunded, we did get money for the services back from the court.
June 9th, 2007 at 9:55 pm
So, what happens in the following scenario? A lady bought a gift certificate online via our website. Three months later she calls to make the appointment. She is verbally informed of our 24-hour cancellation policy (which is on the website and she was also instructed to visit that section of the site when making the appointment), and she agreed to the policy. An hour and a half before the scheduled start time, she cancels. It was not an emergency or catastrophic situation. We explain that gift certificates are transferable but not refundable and the notice was too late to reschedule the appointment. A week later, she pulls a chargeback on her credit card, claiming "services not rendered". We don't have a signed receipt, or an actual swipe of the card. We only have the SpaBoom authorization code, a copy of the gift certificate (which states that it is "void if appointment is canceled less than 24 hours before the scheduled appt time") and a voice recording of the timestamped voice mail she left stating that she was cancelling. We submitted this evidence. What's our possible/probably outcome? Has anyone else had this happen?
July 6th, 2007 at 2:02 am
Always dispute the charge back, no-matter-what. You could win. Also, if you are able to locate the person who performed the charge back; send proof of purchase to the police nearest them and claim sales theft. If the police find they still have the product after performing a chargeback (Product must be returned to retailer upon performing a charge back) then they will be arrested and could face up to 10 years in prison and $50,000 in fines.
Be smart, know the rules, know the laws, and those who want to rip merchants off will know fear.
September 28th, 2007 at 3:48 pm
Beware of clients wanting to make multiple spa reservations, spread over multiple days, including for their pregnant daughter. And… where they want the spa's credit card information (!!!). They explained that since we offer a great rate, they need to cancel their reservation with the other spa (or massage therapist), who charged them 5 times more the amount that A Spa For You quoted. The other spa (or massage therapist) is willing to refund the whole amount to us, and therefore this client need our CC info! When the e-mail arrived I was very aware of the possible fraud. When it unfolded by them asking our CC info, it was clear. This happened over the last week. Even though it happened before with European e-mails and well known models paying the spa back, this one started off with just making multiple reservations.
March 28th, 2008 at 4:03 pm
Just a quick follow-up on the late cancellation where the lady pulled the chargeback on her card, since I'm sure some of you might be wondering. We disputed, sent in all of our evidence, and WE WON! It took a long time (we were informed at the end of August, and the funds were credited back to our account), and we received some kind of formal closure from them in December.
Word to the wise: when the chargeback was initiated, we were immediately charged a $15 fee, which is actually pretty low, since these fees can hit $35 or more. Even though we won, we were NOT credited that money back. Also, it may still have hurt our chargeback ratio, which is not supposed to exceed 1% of all credit card transactions (otherwise you may be banned from having a merchant account and being able to accept credit cards), and I don't know if the fact that we won the dispute made any difference to that. But, it does go to show that you can win a chargeback even when there is no purchaser signature. Just post your policies very clearly, and in multiple places.