Chargebacks: how we were taken for $6k and how we’re fighting back

This post has been a long time coming, but it’s one that I finally made sure I sat down and wrote because I’m sure it can save someone from getting scammed the way that we did.

What is a chargeback?

According to our good friend Wikipedia:

A chargeback is the return of funds to a consumer, forcibly initiated by the consumer’s issuing bank. Specifically, it is the reversal of a prior outbound transfer of funds from a consumer’s bank account or line of credit.

The chargeback mechanism exists primarily for consumer protection. U.S. credit card holders are afforded reversal rights by Federal Reserve Regulation Z under the Truth in Lending Act. U.S. debit card holders are guaranteed reversal rights by Federal Reserve Regulation E under the Electronic Funds Transfer Act. Similar rights extend globally pursuant to the rules established by the corresponding card association or bank network.

A consumer may initiate a chargeback by contacting their issuing bank, and filing a substantiated complaint regarding one or more debit items on their bank statement. Chargebacks are the consumer’s last line of defense against unscrupulous merchants. The threat of forced reversal of funds provides merchants with added incentive to provide quality products, helpful customer service, and timely refunds as appropriate. Chargebacks also provide a means for reversal of unauthorized transfers due to identity theft.

You can see why this would be a good thing.  I’ve encountered identity theft.  Mike and Greg have had fraudulent charges on their credit cards, as has my girlfriend and several other people I know.  They exist to protect the consumer.

But what about when the consumer is wrong?  What if the consumer, not the merchant, is committing fraud? As we’ve found out, pretty much everyone wins except the business.  The consumer gets the charge reversed, and the banks take their money back from us.  Not only are we out the funds, we’re also out the goods that we shipped.  Despite being able to provide tracking information to prove delivery for every single chargeback filed against us, we have lost all but one case.  I did a quick search of my emails and I saw 11 chargeback cases from the past year.  11 times where we shipped the items and (to the best of our knowledge) the items were received by the customer.  And we won once.

Scenario 1: International Fraud

This was the big one, and a large majority of the blame falls on my shoulders.

10/31/2008 – an order comes through on Tastefully Driven for 150 bottles of Glucosamine Chondroitin.  The products total an even $6,000.  Due to an error with our shipping system (since fixed of course), the customer is only charged $35 to ship the order to Singapore, bringing the total to $6,035.  We use PayPal Payments Pro for our credit card processing.  In PayPal, the funds appeared as they normally would.  For international customers, address verification doesn’t work (for domestic customers, we’re able to see if the address on the credit card matches the one that we’ll be shipping to, essentially eliminating the possibility of fraud).  We discuss the possibility of fraud, but agree to move ahead because we know it will take us a long time to get the products in stock.  We figure if we stall long enough and ask enough questions, that we’ll be OK.

11/3/2008 – after shooting a few emails back and forth with the customer, I place an order with our manufacturer for the supplements.  The customer replied to all of my emails, albeit with broken English, and answered a few questions about shipping and the date that he needed the order by.   At this point, we were still a bit skeptical, but the fact that he was in constant communication with us made us feel better.   George called and I emailed PayPal to see if there was anything they could investigate to help us prove without a doubt whether or not this was fraud.  The phone operator basically read PayPal’s chargeback page over the phone, and we never received an email reply.  We were skeptical, but also didn’t have any real proof of fraud.  On an order of that magnitude, we easily make a few thousand dollars, which is probably the #1 reason why we proceeded.

11/13/2008 – we receive the supplements in from our manufacturer, and ship them via FedEx International.  As you can see from the tracking information in that link, it arrived on 11/21 and was signed for someone named “.MR KHAMIS”.  The customer replies back:

Dear Adam,
My order has been delivered.
Thanks for the best product and the best service.
Here is my new order :
– Creatine Ethyl Ester Capsules Size: 120 capsules,qty 400 Btl
– Fish Oil Capsules Size: 100 capsules,qty 200 Btl
Do you have instock ?
Please give me the best discount for the order.
I look forward to hearing from you soon.
Best Regards

At which point, we figure that we lucked out and that the order wasn’t fraud.  To be safe moving forward though, we ask for future purchases to be done via wire transfer.  Of course, we never hear back from the customer.

12/8/2008 – we receive a phone call from a lady in Indiana.  Her credit card is brand new, has never been used, but has a charge from our company on it.  Greg took the phone call.  He asked how much.  We were all in the room, and our hearts all stopped when we overheard her say $6,035.  Greg says he’ll get back to her.  We call our lawyer, who is enraged, but informs us we’re pretty much screwed.  Knowing that the chargeback is imminent, Greg calls her back and tells her that she should call her bank to investigate the fraudulent charge.  We wait.

1/14/2009 – we finally receive the notification of the chargeback that we had been waiting for.  We of course file our response immediately, proving that the item was shipped and received.  George calls PayPal again and receives no help…again.

2/23/2009 – almost four months after the initial transaction, PayPal informs us that we lost the case and that the $6,035 has been withdrawn from our account.  We had kept it there all along, suspecting the worst.

For obvious reasons, I want to make sure that I publish this customers information.  Mike researched his address and it appears to be a freight forwarding company, and I’m sure his name/email are fake.  Nonetheless, if someone Google’s his name or address in suspicion, I want them to find this page and read our story.

sipex maboel
Maju Jaya block 1815 geylang bahru
Kallang Distripark , SG 339716

How we’re fighting it:

Because we cannot verify that shipping addresses match the address on the credit card, and because it’s infeasible to take legal action internationally (and to a lesser extent, customs restrictions),  all international orders represent a high risk to us.  We ran some numbers and learned that only about 6% of our revenue comes from outside the US.  After some discussion, we decided to still ship internationally…for now.  We’re taking a very very cautious approach to all international orders.  If an order is over ~$100 and looks the least bit sketchy, we’ve been refunding the customer and requiring a wire transfer.

I’m assuming that Sipex’s success led to us being put on some sort of fraud list, because we’ve had three other similar transactions through Tastefully Driven since that time.  I actually dealt with one a few days ago.  In all of the cases, I immediately refunded the customer, told them that we’d need payment via wire transfer to proceed with an order of that size, and of course never heard back again.  No customer has actually ever gone through with a wire transfer, which reassures us that we’ve probably prevented some additional fraud.

The thing with international orders is that they aren’t critical to our business.  At some point, it won’t be worth the time and hassle to ship internationally.   There is quite a bit of programming work involved with syncing our systems up with USPS for international orders, as well as work involved correctly filing out customs forms.  We’ll piss some customers off, but we’ll make our business more efficient and less risky.

Scenario 2:  Domestic Chargeback Blackmail

These actually bother me more.  Here’s what will happen – a customer will place an order that we fulfill and then change their mind about something and make an unreasonable request.  When I say unreasonable, I mean unreasonable.  We always go above and beyond to correct mistakes or even inconveniences, whether it’s giving the customer a credit, partially refunding and order, or re-shipping an item.  But when sometimes, when a customer demands absurd things, we draw the line.  How do they react?  By threatening us with a chargeback.

They think we’ll give in and acquiesce to their demands.  Of course, we don’t.  And in a few cases, they’ve actually gone ahead and called their bank to initiate the chargeback.  They lie and tell their bank that the charge was fraudulent. We had two of these in less than a month over the holidays where we ended up losing the funds. We decided we had to fight back.  We scheduled a meeting with our lawyer.  He was equally as frustrated as we were.  This stuff is very hard to fight legally.  Also, even on a big order, you have to weigh how much of your time you want to spend hunting down a few hundred dollars.  Then again, you also can’t let people steal from you without consequence.

How we’re fighting it:

We spent a few hours brainstorming with our lawyer the appropriate response.  We decided that he will send a letter to the customer, stating that the order was shipped and received, and that we have proof that the chargeback was initiated as a form of blackmail.  The letter goes on to request that the chargeback be rescinded or payment sent to us, and if we do not hear from them we’ll “pursue to the funds to the fullest extent of the law”.  Depending on the unique situation, we’ll go from there.

I think he’ll be sending our first letter this week.  I have mixed emotions about it.  It’s sad that we need to do this, but if someone doesn’t stand up to people and let them know that this is wrong/illegal it’ll keep happening.

Scenario 3:  Inaccessible Customers

The rest of the chargebacks generally go the same way:  customer files chargeback, we find evidence that the order was shipped and delivered, customer doesn’t respond to our emails/calls, we lose chargeback.  Very frustrating as well.

How we’re fighting it:

Not a whole lot we can do here.  We’ll probably have our lawyer send a letter in these cases as well, but just make it less threatening and more focusing on the fact that we cannot get in touch and to please call us ASAP.

Newegg: the Ideal Model

Newegg has the best possible model.  They don’t ship internationally and they require address verification:

Address verification is a precautionary measure performs to ensure your safety and deter fraudulent activity. The nature of online shopping does not permit us to request a traditional form of identification, such as a driver’s license, like a standard brick & mortar store. We instead conduct address verification through your credit/debit card issuer to confirm your identify and verify the validity of your purchase, ultimately protecting your credit and privacy.

This is the ideal situation.  I think for us, it’s not a question of “if” but rather “when”.  We’d obviously lose that 6% of international revenue, it will undoubtedly increase customer service, and we’ll probably lose some percent of US orders.  It’s a price we’ll be willing to pay for simplicity and security, but not until we’re a little bigger and a little more profitable.

What I Learned From All of This

Flashback to that day when we found out about the international $6k chargeback.  We all let out a few curses, but after 30 seconds we started figuring out what we were going to do about the situation. I called our lawyer, George called PayPal, and Mike and Greg researched international chargebacks.  No one got mad, no one blamed anyone else.  It was the situation we were in and there was no point worrying about things we couldn’t control.  We became focused on what potential recourse we had and what we could do to prevent it in the future.

More than any other event in our company history, this is the one time that sticks out to me as the time I knew I had great partners. Many people would have pointed fingers, and in this case those fingers probably would have been pointed at me.  It’s only when you go through stuff like this that you really get to know people.  You see their true colors and their true intentions, and all I saw in that room that day was a group of people who made a mistake and were trying to figure out what the right thing for the company was to do moving forward.

Mark Cuban tells a great story in his Success & Motivation post:

Then I learned a very valuable lesson. Martin had done a great job of setting up our accounting software and systems. I got monthly P&L statements. I got weekly journals of everything coming in and everything going out, payables and receivables. We had a very conservative process where Martin would check the payables, authorize them and then use the software to cut the checks. I would then go through the list, sign the checks and give them to Renee our secretary/receptionist to put in the envelope and mail to our vendors.

One day, Martin comes back from Republic Bank, where we had our account. He had just gone through the drive through and one of the tellers who he would see every day dropping of our deposits asked him to wait a second. She comes back and shows him a check that had the payee of a vendor, WHITED OUT and Renee Hardy, our secretary’s name typed over it. Turns out that in the course of a single week, our secretary had pulled this same trick on 83k of our 85k in the bank. As Martin delived the news, I obviously was pissed. I was pissed at Renee, I was pissed at the bank, I was pissed at myself for letting it happen. I remember going to the bank with copies of the checks, and the manager of the bank basically laughing me out of his office telling me that I “didn’t have a pot to piss in”. That I could sue him, or whatever I wanted, but I was out the money.

I got back to the office, told Martin what happened at the bank, and then I realized what I had to do about all of this. I had to go back to work. That what was done, was done. That worrying about revenge, getting pissed at the bank, all those “I’m going to get even and kick your ass thoughts” were basically just a waste of energy. No one was going to cover my obligations but me. I had to get my ass back to work, and do so quickly. That’s exactly what I did.

When you get taken like we did, all you can do is get your ass back to work.

Update 7/23/2013: I’m glad that years later this post continues to elicit so many comments and emails. This is an important topic to discuss. However, prior to emailing or commenting, please thoroughly read the comments below and take a look at my other posts on chargebacks as well as the comments on those posts. A lot has already been discussed and we’ve made quite a few improvements in the 4+ years since this post. Thanks for reading!

85 comments on Chargebacks: how we were taken for $6k and how we’re fighting back

  1. Dale says:

    Adam, thanks for the lesson! The only thing you can do is to focus on the next steps and count your blessings with each and every honest customer (which I assume is the majority).

    • Lori says:

      After more than 10 years in business, we’re dealing with our first chargeback, one made by a customer who boldly lied to her credit card bank. am appalled. after reading all posts below, i have some ideas to share. Yes, we need a website where we can list the fraudulent customer’s name and address. Just like brick and mortar stores do when displaying those who have passed bad checks.
      Secondly, I’m dealing with this customer after doing research into who she is, where she lives, where she works even. I have now advised her that if we do not win the chargeback, we will file a small claims case (specifically naming her county) and will contact her employer to let them know of the situation. Heavens, it worked. she is now begging for mercy. I forced her to email us a statement saying that the information she provided her card bank was false. We merchants need to stand up to this insanity. we need to take the upper hand and stand up, making it clear we won’t take this fraud lightly. Arm yourself with knowledge, everything you can find out about the individual. Use it to show your strength and show that you did your homework. Fight it, even if it costs you money to do so.

      • Adam McFarland says:

        Great story Lori…not the chargeback part but that you were able to get her to rescind the chargeback! I’m sure she’ll never do that again, and hopefully she tells her friends and they’ll think twice before filing a fraudulent chargeback. We’ve had similar success contacting a few of our customers, but most are untraceable (fake names, email addresses, stolen cards, etc).

  2. nethy says:

    Hi Adam,

    Thanks for posting this. Well written.

    I don’t know where to start. Chargeback fraud & fraud in general is a huge problem. Apart from the moral outrage, apart form the direct costs, I beleive this has huge economy-wide costs. The $10k – $20k, legal fees anti-fraud software (it’s usually a little extra) is easy to measure. A little harder to measure is the cost of all the follow up a lot of merchants have to do to protect themselves. I have clients that call every single customer before charging a card. Some even ignore the online transaction & request payment over the phone. This is just because the police may investigate a phone-fraud (if you hand them the case on a plate) whereas online fraud is very seldom investigated. You could probably do the sums one employee time spent, but go measure the deals they lose when they can’t get someone or when a customer just thinks it’s too much hassle & doesn’t come back. What are the chances that the fact that an otherwise profitable merchant goes out of business & fails to become the next Dell gets counted? How many brick-and-Mortar businesses just avoid the online world because of it?

    How much is lost by TD not shipping overseas? 6%? I reckon it’s a lot higher. If fraud wasn’t an issue you might be expanding your business intentionally in that direction. The world is big after all (even if you are in the US). Do you advertise on Singaporean sites or run worldwide Adwords campaigns?? It may be a matter of giving up on 6% at the time of the decision, but it’s a lot more if you take into account that you were probably not all that keen to grow that 6% in the first place. From a wider perspective it means that the slackoffs selling polish in Australia don’t need to pick up their game because they don’t have DI to compete with.

    Basically it’s a long winded way of saying that Fraud is an iceberg.

    The system is basically set up to protect the customer fully with no cost to banks or intermediaries. It’s hard not to be cynical & point out that Banks, credit card companies & intermediaries are big enough to lobby. However it happened though, the incentives are all wrong. Banks/credit cards have no reason to defend against this kind of fraud. If a fraud happens, it costs them a little to process a chargeback (sometimes hey charge the merchant), & they get to be heroes to the customer, whether he committed the fraud or is the victim. No big deal.

    Merchants are the only ones with incentives to prevent fraud, but they have no control over the ecosystem. They can implement/buy anti-fraud procedures & software, but they cannot make credit cards safer. Credit cards are open to fraud but have little incentive to fix this. At the end of the day there is no real alternative to accepting CCs. A wire transfer isn’t really a substitute.

    PS: nice redesign.
    PPS: {where I offer a fools consolation} You are half-protected by the fact that your goods are not as easily resealable as some. If you sold ipods or laptops, your fraudsters might even flip the merchandise at a premium on what they stole from you. As it stands, there are fewer potential fraudsters who can easily resell supplements & they do so at a reduced price.

    • Adam McFarland says:

      Awesome reply Nethy. Since we had briefly chatted back and forth about this before in the comments, I was hoping you’d chime in. You bring up a good point about the industry that we’re in. I can’t even imagine being a Newegg, which is just one more reason why they are as strict as they are.

      You also bring up some great points about international shipping. Killing it is not something we take lightly. Long term we’d love to be able to grow and ship internationally if we could automate the process better and could minimize fraud. The automating is certainly possible (although customs forms are a pain), but the fraud just seems so highly unlikely that we probably will end up getting rid of it at some point and then end up losing out on being a truly global company.

      Maybe someday someone will come along and “fix” this issue, but I’m not holding my breath. It’s probably going to remain broken for the foreseeable future. And as you mentioned, you wonder how many businesses fail to grow or just flat out fail because of it.

      • nethy says:

        If a fix does come along, my bet is on a merchant-safe payment method. The legal frameworks may be in the way of that, I’m not 100% sure. But my guess is that there is a way around it for someone willing to try.

        Making online payment work is definitely finished yet. We haven’t really seen any impressive innovations since Paypal & they haven’t really give us much for the last 10 years.

        Let me put it this way: I paid 20% higher then the Amazon US price for my laptop last year because no US suppliers would ship to me.

        Let’s assume that the difference in sipping was $50 & super-anti-fraud transaction cost a (massive) $100, I would have still ordered. The UK-US spread was even bigger at the time (exchange rates evened it out).

        Now there are all sorts of duties & Vats to contend with on top of fraud & shipping. But maybe someone will come along & make it all work. Something that not only prevent fraud, but also take care of the paperwork All the right forms get faxed, folded & filled in. Maybe some forms get sent to the buyer to sign & fax. Whatever needs to happen.

        The upside is that fraud would now be committed against the tax offices in the delivery country. Maybe it would also help prevent fraud.

        • nethy says:

          Actually I was just thinking about that…

          This all assume that customs departments have any kind of an interest in helping anyone. They don’t really. Why should they do something like create APIs or accept their duty electronically?

          Unless it means less work for them (rather then more business), they would much rather everyone just go away.

  3. Anthony says:

    Hey Adam,

    First of all – nice redesign. Simple, sleek and to the point.

    In regards to this chargeback situation, there are a couple conceptual things that are entering my mind…

    First – have you ever seen websites where a phone # is listed along with complaints/comments about that phone #? Here’s an example:
    The reason I ask is because I wonder if there isn’t something like this for merchants trying to look up potential scammers. Don’t you think it would be so extremely useful for merchants to be able to input people/addresses/phone #s they’ve specifically had fraud issues with before, so that other merchants processing future purchases can use that same, standardized database as a fraud prevention measure?… Based on a “ratings” system, a real-time API could even be implemented so that an obviously fraudulent purchase is stopped before it can even be completed. I realize there are many flaws and loopholes to such a system, but it’s better than what most people do now, which is essentially “ship and pray”.

    Second idea I have (and more realistic to you), is putting some sort of disclaimer/warning on the checkout process only for international/high-risk orders. This warning would briefly explain the process you’re now implementing above, hopefully encouraging potential scammers to just stop in their tracks and move on to a merchant that doesn’t seem as risky to pull one over on.

    • Adam McFarland says:

      Anthony –

      Thanks for the compliments about the site 🙂

      Your first idea is something I quickly pondered when we first had that huge chargeback but sort of forgot about since. It’s a great idea. Thanks for sharing. I’d gladly share customer information (and other useful business info) with other e-commerce companies in other industries if it was for the greater good of online commerce. You could have various “threat” levels returned from the API based on how many bad transactions a customer has had and the severity of each one. As you said, it certainly would have some flaws but it would be a start. If you could get a massive community supporting you (especially the really large retail sites), I think you could work out the rest. Something I’d definitely consider tackling down the road. It is officially added to my “future potential projects” list, which is like 100 long.

      Your second idea is something I think we’ll be doing. We have a whole slew of other shipping issues (worthy of another post). At some point in the next few months we’re going to sit down and figure out how to handle each one and then I’ll do any programming and policy updates all at once. For example, requiring a signature on all shipments is a big one. If we do that, we will win claims with FedEx almost 100% of the time on lost/damaged goods, and we’ll also ensure customers always get their stuff. Then again, people will be pissed that packages won’t be left at their door when they are not home, as they are now. However, some people right now get pissed at us for not requiring a signature. Fun stuff.


      • Adam McFarland says:

        Update – Anthony’s idea was already on my “future potential projects” list when I went to add it. I called it “Customers That Suck Project”. But I swear, it totally was off my mind until I read Anthony’s comment. Otherwise I totally would have worked it into the post. Just goes to show how many things go in and out of my brain without me remembering 🙂

    • Bob says:

      You’re proposing yet another database that would store the personal information of consumers without their consent. Such databases shouldn’t even be legal. We (consumers) should have legal privacy protections against such intrusions, but we live in a “pro business” (corporatist) nation where businesses routinely collect and sell all sorts of data on consumers without their consent. And when that data is lost or stolen due to businesses spending too little to secure that data (securing that data is expensive, which hurts profit margins) nothing happens, aside from some public hand-ringing for PR purposes (Equifax assholes). Privatize the gains, socialize the losses.

      I’m sympathetic to your position, but this proposal would provide yet another way for businesses to abuse consumers. F— that.

  4. Rob says:

    Hey Adam,

    looks like a cruddy situation really – the mentality of some people sucks! To be hoenst I’m more enraged at the ones who try and blackmail you than the scammers because of the sheer cheek of it!

    I think you’ve got plans for some pretty good precautions but I don’t think there’s a whole lot you can do to completely eliminate the fraud – even you move to wire transfer only there’s still possibility of disputes, blackmail, and the customer using stolen details. I wonder how often you get scammed and don’t realise though – like customers complaining that a product shipped broken and you just blindly ship a replacement? A number of times I’ve ordered things and they’ve been broken in the box and the company has just sent out a replacement without asking for proof – I could very easily have taken advantage of this.

    One point you made right at the start doesn’t really compute though – you said “Not only are we out the funds, we’re also out the goods that we shipped” – surely you can only be out one rather than both though? If you ship the product and don’t get paid, you’re only out the product, so it’s a loss of the cost of the product (rather than the price), as well as associated overheads. Not that that really helps your situation…

    I genuinely don’t know the best solution to your problem though – only thing I can think of is to follow the lead of the big companies and impliment similar procedures.

    Also, I’m in agreement with nethy about the 6% – if you’re not actively marketing to foreign customers then I don’t think you can really know the percentage – there’s probably a lot of potential for growth there if how well you’ve done in America is anything to go by – I guess you just have to decide if at some point in the future it’s worth making investments in that direction.

    For now, good luck!

    • Adam McFarland says:

      Rob –

      Good points. We definitely do get scammed from time to time I’m sure by customers who claim damaged items or claim that the wrong items were shipped. We try to take those on a case by case basis. First and foremost, if it’s a regular customer that George or Greg knows from a forum, we tend to take their word. Greg handles all of these instances and he keeps a spreadsheet of everything we re-ship. He does a quick search of our history on the customer and asks for more proof if we suspect anything suspicious. Generally, the items we re-ship cost us less than $10 + shipping. We tend to make mistakes that “make sense” – shipping the wrong size, the wrong color, etc. If it’s a larger order or an odd mistake, we’re much more likely to ask for photos and ask more questions, contacting FedEx if necessary.

      For the most part though, we’d rather trust our customers because we believe the vast majority are telling the truth. We take the approach of giving everyone the benefit of the doubt until they prove us wrong.

      As far as the “point that doesn’t compute”, yes, you are correct. The only true “loss” that we took was the ~$3k in cost of goods sold on the order. I’ll explain what I was thinking when I wrote it. Let’s just say that we were notified of the chargeback prior to the delivery in Singapore. In that case we could have stopped delivery and recovered the goods but lost the money. Or, if we won the chargeback case, we would have lost the goods but kept the money. Again, you’re 100% right, but that’s what I meant by losing both. I totally should have worded it differently in retrospect.

  5. Dave says:

    Adam – This was an awesome post that was extremely informative. I *knock on wood* haven’t had any chargebacks yet. My business tends to do a good amount of international business, and I’m essentially just waiting for the day I’ll get screwed on a chargeback. It really sucks, especially with a small company, that can really break them…especially with something like a $6,000 deal.

    I agree with some of the comments, there is literally no protection for the merchant against fraud. There needs to be better standardizations of security to help protect both the consumer and the merchant. As a consumer I feel really good about feeling protected with making a credit card purchase, but I would never be scamming or screwing a merchant..I would only use a chargeback unless I was in a position that I had to. I’m curious as to what was different about the 1 case that you did win?

    Newegg is ideal in terms not having to deal with the chargebacks, but in reality…I wonder if the numbers really work out in a positive way. Meaning, would they make more allowing orders from everybody vs the amount of money they may lose for chargebacks.

    Again, posts like these are the best, it’s nice to know more about these day-to-day issues like this and how others are dealing with them.

    • Adam McFarland says:

      Dave –

      I asked George about the one case we did win. Apparently that was the only one that was a US order and we had signature confirmation from the person initiating the chargeback. The rest we had tracking information that said delivered, but no signature confirmation. Which is a vote for requiring signatures on all packages (although like I mentioned in one of the comments above, that has its cons as well).

      Something interesting about Newegg. I had lunch the other day with Bill, the professor from Skidmore. He said he read the post and thought that Newegg’s policy might be more of a scare tactic than a firm policy. He claims to have shipped orders to several different addresses not on his credit card and never had a problem. Personally, I’ve only ordered to my one address so I don’t know. But it would be interesting if they just “reserved the right” to reject anyone, pointing to that policy, but in reality they accepted most orders.

    • Dave says:

      Lol, well what do you know. One day after writing this I have a customer submit two chargebacks, even though everything was resolved via e-mail and he still has the products we sent. Talk about coincidence.

      • Adam McFarland says:

        Sorry to hear Dave. Getting those chargeback emails are the worst. So deflating. Obviously feel free to email me any time if there’s anything I/we can do to help.

      • Dave says:

        How is it possible that PayPal/credit card could possibly side with the consumer when I show proof of tracking, proof of delivery, along with e-mails from the actual customer stating that they got a product with IP addresses that match the order IP address?

        I don’t see how it’s possible to win a chargeback case.

        • Adam McFarland says:

          That’s a lot of supporting evidence, but unfortunately I’m not surprised. I honestly don’t think that anyone is reviewing the evidence submitted…or at least not anyone important who has real authority to stop the chargeback. It’s a really broken system that probably won’t get fixed any time soon. The only people getting screwed are the small merchants like both of us. The banks and the consumers (the ones with the power to get it changed) don’t see it as a broken system.

  6. Gordon says:

    Very interesting post. Had you ever done a big international shipment like that before to make you less nervous about the $6k?

    The scammers know no bounds – we’ve been hit by guys from china who get an identity and credit card, and then buy stuff through – not to get the merchandise (which they send to a random address in the US), but to get the 5% or 10% cashback. So they spend their days using stolen credit card info to make $4 or $7 a pop (if they can get the order through…)

    • Adam McFarland says:

      Gordon –

      Sorry about not approving your comment earlier. Somehow it got caught up in SPAM and I only caught it when I did my weekly check of the Akismet spam filter.

      To answer your question – we had never done an international order quite that large, but had done several over $1k. It’s not uncommon for international orders to be larger than average. Considering the amount of work involved in the process (plus the shipping costs), international customers tend to place larger, less frequent orders.

      That scam with ebates is crazy, but not all that surprising. People will stop at no length if they find a way to make a few $.

  7. Nev says:

    Trip to Singapore: $1,000
    Baseball Bat: $15

  8. Oke says:


    I finally got a chance to read your post. I like you being candid and providing a solution to your problems and giving it back to the public to see. It seems you never really know what might come up, while running a business. It looks like yall have things figured out in this situation, even though it is an expensive lesson, it is a lesson that will help out your company in the long run.

    I think it was a wise decision to cut out international business. It will also cut out the headache of shipping and hoping it is a real person wanting products they actually paid for from their own monies.

    One thing that I will say that is helping yall out in all of this situation is having a percipient attorney who values the growth and well-being of the company.

    Keep sending those insightful and not-boring-real-world-business-lessons our way!

  9. Adam McFarland says:

    Check out this link:

    “E-commerce fraud losses in the U.S. and Canada are expected to reach $4 billion in 2008, an 11% increase from $3.6 billion in 2007”

    “The percentage of online revenue lost to fraud held steady from 2007 at 1.4% of online sales”

    “Merchants fight only about 50% of the fraud chargebacks they receive, with a third of merchants challenging less than 10%. Merchants that do challenge chargebacks recover, on average, 28% of that revenue”

  10. vivano says:

    We have just submitted a 15 pages response to Amex about a dispute initiated by a non-fraudulent customer. They purchased about $5K of equipment and services (telecom) about 5 months ago and now decided that it “didn’t work according to instructions” (in fact, it did). Without contacting us about possible return or warranty service on the equipment, they filed a dispute with Amex for the entire amount of the transaction. Should the customer win, we will be left without the products and the money. I guess we will have to go to the police and file a theft case.

    I agree with “nethy” — the only party in the transaction who is really interested in fighting fraud is the merchant.

    • Adam McFarland says:

      Vivano – I’m sorry to hear about your situation. I’ll never understand how chargebacks have become a way for consumers to not pay for things they aren’t satisfied with. It would be a good system…if people used it for it’s intended purpose of fraud and not because they’re unhappy with something they willingly spent their money on.

      • vivano says:

        By the way, after a few months of fighting, we won the case and Amex released all of our funds. We were able to proof that the product worked, we provided the service and it was customer’s fault not following the instructions.

        However, I don’t how it would have turned out if the customer initially claimed they didn’t receive the items (it’s hard to do after 5 months though).

  11. […] products to buy (which drains George and Greg trying to do their best to explain).  I’m sure chargebacks will be up […]

  12. […] understandable time constraints.  In  particular, I asked him some in depth questions about chargebacks and his business, which he didn’t answer because it probably would have taken an hour. […]

  13. […] busy times.  And especially for international customers (this one was international, as was our large chargeback case).  All four of us are busy, but we all try to at least scan every order that comes through.  […]

  14. […] fraud and other shady orders tend to come more frequently from international customers.  Our $6k chargeback was international (although I still take full responsibility for not having realized earlier what […]

  15. […] a doubt the most popular post I’ve written was last years post about chargebacks. Like most retailers, we feel pretty helpless when it comes to chargebacks, and I think that […]

  16. Dani M says:

    I found this post while researching Fraud, chargebacks and International. If you think that having full AVS response, CVV response, shipped to the billing address and got a signature through UPS would be enough to win a $3000 chargeback you would be mistaken.

    I am in the US and the customer was Canadian. The Chargeback processor said “MasterCard does not recognize AVS for international cards”.

    There is no recourse except to stop accepting International Credit Cards for us.

    We have won chargebacks but only when we shipped to a USA address.

    It is unfortunate that we can no longer ship internationally but we can not continue to stay in business when the consumers learn to say “I did not authorize it” even though they paid custom fees on a large order they did not authorize. How totally disappointing.

    • Adam McFarland says:

      Dani –

      Thanks for the comment. I’m sorry to hear about your chargeback experience. Unfortunately it seems pretty in line with what we’ve experienced. I don’t know how much you’ve clicked through some of those posts just above your comment, but we eventually did away with international shipping for the same reason. While it sucks to not be able to fulfill orders to a customer who wants to pay you, we just had too many issues with too high of a percentage of orders for it to be worth our while to continue on with it.


  17. VL says:

    I would recommend to sell the stuff internationally, and instead of bothering attorney, which most likely cannot do much, but charge you $300 per hour, get a 3D security for al the payments.

    We had similar problem, with “fraud/does not recognize” chargebacks.
    So we changed the sales tactics. What we did is we enrolled in Verified by Visa/MasterCard SecureCode programs. During the “enrollment validation”, if the card is not enrolled in the 3D program – we deny the transaction, asking to use a different card.

    Results: not even a single fraud chargeback. There were few people from Italy stating they have not received the stuff, however Fedex proof of delivery was sufficient to prove that services were rendered.

    Hope it helps!

    • VH says:

      Which “Verified by Visa/MasterCard SecureCode” 3D program did you get it from? Are you still happy with the service? We got chargeback from Russia for more than $3000.

  18. Mike says:

    This is a matter of politics – poor little consumer vs. big greedy company. Even if your company is neither big nor greedy, it doesn’t really matter. You aren’t supposed to win a chargeback. The consumer is. Liberal politics demand that vulnerable consumers have a tool to fight back against powerful companies. And it’s an easy tool to use. All you need is a phone or an internet connection to file your chargeback claim.

    But keep in mind, this isn’t about who is right and wrong. Forget about that. It matters not. This is a very old philosophical battle: rich vs. poor, David & Goliath, redistribution of wealth, rich man and the eye of the needle, etc. Call it what you want. Chargebacks give the consumer more power and create a vehicle for moving consumer debt onto corporate balance sheets as operational losses (redistribution of wealth). Make no mistake. The law was designed to do just that.

    Unfortunately, many consumers are learning that they can exploit these rules into a “get something for free” program. And it WORKS! If you look at the list of chargeback codes, it’s clear that a clever chargeback bandit could generate any number of false claims to procure free merchandise. It’s not even the least bit difficult – and it’s basically legal. All the chargeback bandit has to do is generate a glitch in the system of proofs, and the deed is done.

    Here’s a quick example. If you would like a new laptop computer, the chargeback system will provide that for you. It’s easy. Just find a popular internet store and order yourself the best laptop they have. Be sure to get the whole works with extra software and accessories. Remember, this is going to be free.

    You’ll need to be smart about a couple things. When you place your online order, don’t give them any red flags. Make sure the billing and shipping address match and that they are AVS accurate. If the merchant calls to verify your order, tell them the order is valid and you’re looking forward to your new computer and make small talk. Nobody at the computer store will think anything is amiss.

    Now … when the items ship, pay attention to your tracking numbers. FedEx and UPS will always give you an estimated delivery date. So watch it carefully so you’ll know just what day to expect your merchandise. On the day your laptop is due to be delivered, make sure someone besides you is home to sign for the package. And ask them to sign hurriedly and sloppily on the screen and accept the package without being memorable. In most cases the driver will not even ask for the signer’s name, and they certainly won’t ask for ID. The driver will go on his way to the next stop, forget about you and your package, and your new laptop is almost free. You just have a few things left to do.

    Wait about 10 days after delivery and then send an email order status inquiry back to the store. Tell them that you ordered a laptop 2 weeks ago and you haven’t received it yet – and ask about why your package has been delayed. Say you never got their emails. Be sure to keep this email correspondence from here forward. It will be your supporting document later.

    The store will tell you that your package has already shipped and was signed-for at the point of delivery. Seem surprised and explain that you hadn’t signed for any packages. Tell them you haven’t received anything. At this point the store will know they’re about to get screwed, so expect them to get snippy. If they insist delivery has been made, ask them who signed for a package (information they probably won’t have or won’t be able to read). Whatever they say, just respond by saying you don’t know that person.

    Suggest that the package might have been misdelivered to the wrong address. Explain that you weren’t home that day, etc. Be polite and patient. Ask that they send you a replacement order – since you still need that new laptop. Ask them to put a “tracer” on your order. Seem like you are genuinely working with the retailer to resolve the issue.

    At this point, one of three things will happen: the retailer will refund your purchase, the retailer will replace/reship your purchase, or they will “investigate” your claim and ultimately deny it. If the retailer gives-in easy, you win … you get a refund, or they reship your order (which you will accept and then later return for a refund).

    Sometimes a retailer will do a package trace with FedEx or UPS. They may actually send the driver back out to verify where he delivered the item. Of course, by now over 2 weeks has passed. So the driver really won’t remember the particulars. But of course, FedEx and UPS drivers obviously won’t admit any fault, even if they delivered the package to a dumpster. As expected, they’ll claim your laptop was delivered to your address. But what’s funny – is that doesn’t really matter.

    Once the retailer denies your claim and sticks to their story that the package was delivered, continue to deny receipt and do your “wounded-customer” routine via email (you don’t appreciate being called a liar, you’ll never do business with them again, you’re going to report them to the BBB, etc.).

    Now you’re ready to call your credit card company. Simply tell the story. You ordered some equipment, you were charged for the merchandise, and you never received it. Tell them you have all the documents and emails to show that you did everything you could to resolve the issue … but the retailer refused to help you. Get it? NOW you’re the poor little victim of a big greedy corporation. The rest is just protocol.

    Since YOU didn’t sign for the package and you don’t know who did, the game is over. You win. You’ll be asked to sign a couple documents and submit your supporting evidence, but the fact that you didn’t sign that little FedEx/UPS electronic scanner will be the key. Your bank will take your side (you are THEIR customer). The mystery of the lost/misdelivered/stolen laptop will just have to remain a puzzle. You get the money and the merchandise, and all it cost you was a little of your time.

    While you were busy defrauding this company, Visa and Mastercard were standing by to help you, thanks to liberal legislation. After all, you’re the poor little consumer.

  19. Mike says:

    Hi Adam,

    I read your update with an odd sense of déjà vu. Our business had much the same struggle many years ago. We learned our initial lesson when we received a very large web-order from Indonesia for $3,000 in specialty optics. Everything looked fine, but we totally missed the red flags. The buyer contacted us shortly after placing the order to arrange express international shipping. This should have been the first flag. When we quoted the shipping, the buyer showed no concern for the exorbitantly high cost – he was only interested in expedience … the second flag.

    Fortunately, the items he requested were special-order. So we got lucky. On the very same day the products arrived in our warehouse, we got the chargeback letter. The (stolen) credit card number the buyer was using actually belonged to someone in the United Kingdom. It was just luck that this particular cardholder reported the unauthorized charge quickly. Had one more day passed, we would have shipped the order and lost everything.

    Our initial response was much like yours – stop all international shipping. But we have since learned that was an overreaction. We ship into Canada, Europe, South Africa, Japan, the Middle East, and Australia many times a week, and it has been years since our last international chargeback. But we use extraordinary caution when shipping into Mexico, South/Central America, and particularly the South Pacific Islands.

    We no longer accept web-orders for international purchases. Instead, we insist customers contact us via email first. The dialogue that ensues will usually indicate whether we have a legitimate buyer or a potential scam artist. Since many international buyers lack a solid grasp of the subtleties of English, it’s actually quite easy to read their intent in correspondence. If we’re satisfied that the buyer is legitimate (low risk), we provide a secure payment link and allow the order to proceed.

    If we are still skeptical, we initiate our high-risk order process which requires the buyer to submit a number of documents before receiving the secure payment link. This usually spooks the scammers – who either don’t have or don’t wish to show the documents we request. Of course, this irritates legitimate buyers, but after a little huffing and puffing, most submit the ID and card scans we request.

    So international orders go quite smoothly now – and as much as 16% of our revenue comes from international purchases. Chargebacks just aren’t an issue for the international side of our business. Our issues are decidedly domestic.

    On our battlefield, first, is just old fashioned fraud – which we combat with AVS and common sense. When an order looks wrong – it usually is. We too will cancel suspicious orders. Most of the time we’re right and we never hear from that buyer again. But if we’re wrong, a little dialogue with the customer usually resolves our question marks and we reinstate the order without too much drama.

    The second is customer service related. As a sporting goods retailer, we have our fair share of customer service issues (broken items, lost shipments, etc.). Most are easily resolved with a little time and patience. But now and then an order “goes ugly” and simply cannot be salvaged.

    In our industry, we have a unique problem. I won’t explain all the particulars, but basically the specialized equipment we sell is quite susceptible to human error. Basically if the user doesn’t follow the instructions, he can damage the product. So when user-error comes into play, it goes one of two ways. Either the buyer is honest and we arrange appropriate non-warranty repairs, or the buyer lies and tries to leverage free replacements and/or free repairs via the classic “wounded customer” routine.

    This is where things can go south. In spite of our best acts of diplomacy, sometimes we reach an impasse with a customer. Nobody like to pay for repairs. Nobody like to admit they screwed up. And nobody likes to get caught up in a lie. So now and then we run into an unwinnable situation.

    And when I say unwinnable .. I mean the rules are written so we cannot win. The language used is very specific, “The customer isn’t benefiting from the product.” THAT’S the standard by which such disputes are adjudicated. The technical fine points and such are irrelevant. Even if the customer blatantly ignores warnings, instructions, directives, misuses a product, etc. … it’s irrelevant. If it can be determined that he customer isn’t benefitting from the product, a chargeback is warranted and we lose.

    Fortunately, chargebacks for all reasons are an infinitesimal expense in the bigger scheme of things. We spend 10X more money on stamps than chargebacks cost us in a year. Nonetheless, after 11 years of being a merchant, I still cannot get over the moral outrage. A chargeback automatically sends my blood-pressure through the roof … not because I’m worried about the money, but because it’s so maddeningly unfair.

    And then I remember that’s it’s just politics – poor little consumer vs. big greedy company. We aren’t supposed to win a chargeback. The consumer is. So maybe everything is right in retail world. I just have to get use to it.

    I’m glad to hear your chargeback problem has improved. But don’t let your guard down too far. No matter if you’re right or wrong, the system still works 100:1 in the cardholder’s favor. And one day, just when you thought you had it all under control …


  20. Dan says:

    I know this is a late post, but I didn’t hear anyone mention this. I believe chargebacks are a mitigated scenario. The percentage of chargebacks could be considered the cost of doing business and might be beneficial.

    Here is why. I have no proof of this, but it has to be a factor in consumer purchasing behavior. How many customers are buying online (or anywhere for that matter) with credit cards who would not have made a purchase if the chargeback was not available to them? Isn’t it possible that clamping down on chargebacks or eliminating them altogether might cause a reduction in revenue for companies, especially online merchants? Consumers would be more fearful of losing money and less likely to purchase certain items (from smaller, less known online merchants particularly).

    One could argue that smaller online merchants might benefit the MOST from the ability for consumers to request chargebacks.

    • Adam McFarland says:

      Hi Dan –

      Thanks for the comment. Better late than never! I have written a few more posts on chargebacks since this one if you’re curious about how we’ve dealt with them as we’ve grown

      You bring up a very good point. I can’t speak for anyone else (or even myself from 2008!) but I personally think that chargebacks are a good thing for the very reason you outlined. It’s the unfair process of deciding who should win the chargeback that bothers me. If a consumer gets screwed by a merchant they should absolutely win. As should a merchant if the consumer is scamming them. From our experiences the consumer wins essentially 100% of the time, leaving the merchant to try to detect fraud on their own before shipping something out, something that is extremely hard to do.

  21. RJ says:

    I just got a 2500 chargeback from paypal. The buyer in India claimed “Unauthorized Transaction”. I had no idea they could rip the money back out of my account. I”m not a business, just a guy. I sold some iPhone 5’s.

    I gave paypal tons of info, including emails, proof of fedex delivery. The credit card company sided with the buyer. How is that even possible? It was obviously fraud. I even got an email from another guy who got screwed.

    Am I basically screwed? Is there anything that can be done?

    • Dave says:

      From my experience, unless you sold it on a marketplace like eBay where they may offer you protection, it sounds like you could be screwed. Does the FedEx delivery show a signature? That could be helpful if you didn’t provide that. Maybe even trying to contact India customs if the guy had to do any import paperwork. On an international transaction of that amount, I would suggest either requiring payment through PayPal. If you’re going to stick with credit card, I would try and put together a credit card authorization form that somebody would have to sign and include a copy of both the credit card and ID. I haven’t yet dealt with a chargeback when I’ve done this, but I can’t see how that would not protect you as a seller (although I’ve been surprised before)

  22. RJ says:

    This was all done through paypal. I sent 2 invoices.

  23. RJ says:

    I sent them FEDEX delivery forms, 2 pages of email correspondence from this guy. They won’t give me the credit card company’s name, I want to investigate this decision!

    • Adam McFarland says:

      Hey RJ,

      Sorry to hear about your chargeback! This is something Dave and I still discuss regularly almost 4 years later because it is still a crappy system for sellers. I agree with all of the info Dave gave you.

      I think your best case would be if you sold on eBay (or something similar) where they may protect you. Your next best case would be if you sold it to a verified address with a signature and you could be protected by PayPal.

      Beyond that, you have almost no chance of winning I’m sorry to say. It is unfortunate that this happened to you as an individual. It’s a very tough lesson to learn. The system is screwed up, scammers know it, and they take advantage of sellers. We still regularly lose chargebacks that we should win.

      As a business, we’ve learned that the best way to prevent these things is to detect the shady behavior yourself, before shipping. As an individual, I realize this pill is much harder to swallow. Selling through a platform like eBay with it’s seller protection, and requiring a signature and verified address are your best bets if you ever do something like this again in the future.

      – Adam

  24. RJ says:

    Thanks for your comments. I pleaded one last time with Paypal, the person is going to bring it up to their superior. I just want 50% of my loss back otherwise I’m closing it all down.

    The frustrating thing for me is that the scammer didn’t care if it was ebay or paypal. It was my suggestion to send an invoice direct to avoid fees and lower his price. Nobody had ever told me about chargeback potential. Oh well, live and learn.

  25. JD says:

    Great post and thanks for sharing your experience. We run a small ecommerce website and have dealt with several customers who have blatantly stolen items from us by running the whole chargeback scheme. By chance, would you be willing to share the letter your lawyer drafted? We are tired of just having to take the loss and want to start fighting back as best we can.

    • Adam McFarland says:

      Hi JD –

      Sorry to hear about your chargebacks. We actually abandoned the letter from our lawyer because we had a 0% success rate with it (I did a quick search and wasn’t able to find a copy). Now, if we actually had our lawyer “pursue to the funds to the fullest extent of the law” as I mentioned in the post, I’d imagine we’d have some success but it wouldn’t be worth our time/effort. The only success we’ve had is when we’ve been able to get in touch with customers immediately after they file the complaint, and have been able to convince them to rescind it, either because they did it by accident or because we were able to fix whatever problem caused them to initiate the chargeback (say, if the package got lost and they decided on a chargeback over just emailing us). We always try to email and call them ASAP. The percentage is still low, but it does work from time to time.

      The “best” solution we’ve came up with is to continuously improve our internal fraud detection in hopes of stopping the suspect orders before we ship them out the door. Ultimately as maddeningly frustrating as chargebacks are, they’re such a small percentage of business that they only justify just so much of our time. I hope we’re at a point someday where we can afford to have our lawyer pursue each chargeback. Believe me, my partners and I really want to!

      – Adam

  26. James Gibbons says:

    Why would any Internet dealer in their right mind accept a U.S. – based credit card for s product that is to be shipped internationally? You check customers out BEFORE you ship, not AFTER. You should have a policy whereby nothing will be shipped unless the customer is reachable by telephone, and you Google the customer’s shipping address as well as email address to see what pops up. KNOW YOUR CUSTOMER!

  27. VH says:

    Thanks for your sharing. We got burned by over $3000 chargeback from Russia.
    Have you installed “Verified by Visa/MasterCard SecureCode”– 3D security which was mentioned by VL? Are you using Paypal instead? We are trying to find something that can help us upfront.

    • Adam McFarland says:

      Hi VH,

      I’m sorry to hear about your chargeback. We have not used the SecureCode that VL is referring to. As I mentioned above to JD, our best defense has been improving our internal fraud detection. We’ve grown substantially since this post was written in 2009 and chargebacks have gone way down as a percentage of sales.

      I’ve written a few other posts on chargebacks since this one if you’re interested.

      If you’re on PayPal, they have something called Advanced Fraud Management Filters that might be helpful. That’s essentially what we look for internally, along with other fraud patterns we’ve detected over the years (for instance, order containing certain products or product combos are much more likely to be fraudulent).

      Hope that helps a bit. Good luck!


  28. LAB Computer says:

    Look at this the buyer has the item and the money:

    Greetings from Amazon Seller Support.

    I am sorry for any inconvenience or frustration this issue has caused you.

    If you have questions about a decision on a prior chargeback, please send an email to:

    Please note that it can take up to five business days for our chargeback team to research your question and respond to your e-mail.

  29. Jake says:

    Hi Adam,
    Thanks for your great web-site. We are a small company and have had some international chargebacks over the last year, fortunately many of our orders are under $100.
    I had a question: you mention that you do wire transfers to your bank and we’ve done this before for established customers. Is there any danger in giving out our bank info (ie: account # and routing #) to new customers? In other words could the customer withdraw funds from our bank with the bank info?

    • Adam McFarland says:

      Hi Jake –

      My apologies for the delayed reply, I was on vacation. Really good question about wire transfers. We had the same concern. We asked our bank and they said there was no risk, however we still didn’t feel comfortable with it. What we ended up doing was using a sub-account to our main account. We had one that was being unused, but if we didn’t we would have opened up a new one. At least this way we’re giving out a different account number but it’s still tied to our main account…and if anything suspicious ever did happen it would be isolated to the wire transfer sub-account.

      – Adam

  30. Jake says:

    Hi Adam,
    Thanks for the response, that’s a great idea, i’m calling my bank today to do that!

  31. tngal says:

    You should list the names and addresses of the US Customers who ripped you off so that other merchants won’t incur the same problem.

    • Adam McFarland says:

      That’s certainly something we’ll consider. Sometimes scammers use fake names, sometimes they use real names that aren’t theirs, sometimes they use the name of the person whose credit card they stole, and other times they use their name or an alias. In the last case we’d want to publicly shame them, but in the other cases we wouldn’t. It’s tough to tell sometimes.

      Ideally there would be a merchant database somewhere where companies could report fraudulent customers and provide info about the fraud. Then other merchants could automatically ping that database before shipping to ensure they’re not shipping to someone with a prior record of fraud.

      Unfortunately this doesn’t exist to my knowledge, and the one service that did exist turned out to be a scam in and of itself! I think it would take a major player – Amazon, Google, PayPal – to do it right.

      We’re going to be building a tool for our internal use where we can flag names, addresses, product quantities, and other patterns so it’s not such a manual process. We’ve contemplated sharing it with other companies in our industry, which would work so long as everyone participated. I’m not sure when/if we’ll do that, but if we do I’ll post about it.

  32. James Baker says:

    Great article! After a couple extremely painful chargebacks (from Canada, oddly), we switched to only accepting wire transfers for large overseas orders. This works like a charm, just have to have a separate account as people can use the bank info to write counterfeit checks. Usually, orders for small items are nothing to worry about in the big picture of things. Legit clients understand the merchant’s risks and are willing to wire the money.

  33. […] owner Adam McFarland wrote about on his blog, the transaction started out simply enough, but very soon spiraled down into a financial […]

  34. BTB says:

    I definitely think chargebacks are helpful. I had an incident where the merchant made a shipping label and claimed the item was shipped. UPS showed it was never shipped or even in their possession, only that they had a label. Company claimed they would look into it. I talked to so many people over many days and finally asked for them to just cancel the order. They claimed they couldn’t even do that! So no item sent, no refund, it was ridiculous. I initiated a chargeback. Somehow, they finally shipped the item and I begrudgingly accepted it (doorman signed for it) because I actually did want the item. I then called my credit card company and cancelled the chargeback. From your article though, it seems like, despite the delivery, things would have gone in my favor, particularly since this was a big company and the chargeback would not have made any dent so they would not have cared to get into the case. Still, I could not in good conscience do that. I can’t believe people are purposely initiating false chargebacks, I’m sorry this happened to you.

  35. Bryan says:

    Hi Adam –

    I can relate to alot of what you wrote!

    Im very frustrated with Paypals inability to protect us small business owners. I sell GPS trackers – and have had an unfortunate run of people purchasing the devices, and then lying to the banks – claiming it wasnt as described, or some bogus claim, and im out the money and the product. Paypal is NO HELP whatsoever. (as u know)

    Im considering heavily going with, but have little to no information on how they will be better, (if at all) in protecting me and my biz against chargebacks. I know there is no perfect solution, but Im looking for a platform that at least allows me to present my side of the fight (proof that it was shipped and received, that it is as described etc.) since paypal is again, virtually useless.

    Any advice would be helpful !

    Have a great 2014!

    • Adam McFarland says:

      Thanks for reading Bryan. Unfortunately I don’t have much first-hand knowledge of other merchant solutions, only that in speaking with business owners who use a variety of solutions (i.e. not just PayPal), they all seem to have the same experience. I think the system as a whole is broken, more so than PayPal’s process.

      I probably sound like a broken record if you read my other posts and comments, but the best solution we’ve found is prevention. There is generally a pattern to the fraud if you look hard enough, at least in our case there is. We’re working on systems to automatically detect these types of transactions. I plan on posting the results – and possibly sharing the code – once it’s complete.

      Sorry I didn’t have a better answer for you.

      Best of luck to you in 2014 too!


  36. Nalno says:


    I googled about ‘chargeback Singapore’ (in and this came up.

    I have a small business, selling online mostly, so personally this week, I have ended up facing a chargeback, a local customer and since Singapore is a small island, I intend to confront this guy and see what is happening. He is trying to get chargeback around USD $300 worth of stuff, which I delivered, so will need to see how this goes.

    I accept credit card transactions through paypal and on monday they told me I had a chargeback. I just stated my case and did not put in any supporting documents (I actually met up with this guy and delivered personally to him). On tuesday they decided to take money from me anyways, so it was then that I had phone evidence (through a series of text msgs) that we had met. So I wanted to submit that as additional evidence but Paypal took just 1 day to consider my case as invalid.

    So now waiting for them to reply (what pisses me off is that they took just 24 hours to process the cash back, but now that I am asking them to take additional evidence, they have not got back to me in over 48 hours). Lets see how my case goes, do intend to take what legal action I can in the case.

    Anyways about the address you have given:

    Maju Jaya block 1815 geylang bahru
    Kallang Distripark , SG 339716

    This is actually a 5 minute drive from my home, and it is an open yard as you might call it or a warehouse storage space. I could actually take a look and see if I find your Mr. Khamis. 🙂 But just so you know, Singapore is a country where our laws work, so if you can prove your case against these guys, chances are you could win your money back.


    • Adam McFarland says:

      Hi Singh,

      Thank you for taking the time to comment. I’m sorry to hear about your situation. I certainly hope that PayPal sides in your favor, but in our experience that’s unfortunately pretty unlikely. You could have the customer contact his credit card company to explain the situation. If they’re willing to do that to help you out, that might be your best chance.

      This is actually a 5 minute drive from my home, and it is an open yard as you might call it or a warehouse storage space. I could actually take a look and see if I find your Mr. Khamis.

      Wow! I sincerely appreciate the offer. I will discuss with my partners but my initial opinion is that we’re not looking to pursue the matter any further. As much as I’d like to recover the money, it’s probably not worth our time/effort.

      Good luck with your chargeback!

      – Adam

      • Singh says:

        Hi Adam,

        Just to update my own comment on the situation.

        I managed to contact the buyer and based on my discussion with him, he said the chargeback must have occured due to the fact he reported his credit card was stolen recently.

        So he agreed to pay me back (including the Paypal penalties) and I agreed if I get back my money from Paypal, I will refund him that amount immediately. While Paypal was extremely quick to take my money (24 hours after giving my side of the story), I am sure they will take maybe 2 months to give it back, if they ever do so.

        So in conclusion, most likely the credit card company gave false information, by stating reason for chargeback was due to goods not delivered, which is an outright lie. These idiots should have stated the reason as use of stolen credit card, possible purchase not by owner of card. Of course the best situation would have been if the credit card company actually verified payments made were by the owner.

        For me I was like what the hell is happening, but I think it was good that I had got down to contact the buyer and talk to him without being judgmental. I also knew there would be 2 possible outcomes with anything in between, that being that I would get paid again by the buyer (best outcome and this happened) due to some misunderstanding and the worst case would be a write off. I also decided if I had to write off this order, I would submit a statement and all evidence I had (basically communications with the buyer) to the police, as fraud had occurred in at least one level. Moving forward, if I ever do any local deliveries of higher value, I will take photo of me passing the goods to the buyer. If I rely on a 3rd party, then a signature would be all I can get.

        As for your own case Adam, I think due to the long period between the incident and now, the chances of you getting back your money is slim (maybe 5% – 10%). I think if this was a year ago, the police should be able to get to catch these people and arrange a refund for your losses. My advise however, still is to submit your statement and all evidence to the Singapore police (please see They are obliged to take your case and perhaps they have the resources and capability to catch the people involved in the fraud.

        All the best and thanks for your post, it is perhaps the most helpful information I have found on the subject on chargeback and the sellers perspective.


  37. Lindsey says:

    Hey Adam! I just came across your post and found it really interesting to read. I feel like I hear stories like yours pretty often, but not usually in a public forum. I love that people are engaging in the conversation about chargebacks and fraud. It is something that shouldn’t be embarrassing but should \ be tackled head on. Chargebacks definitely continue to be an issue that merchants cannot ignore. I agree with you that prevention is a huge aspect of protecting your business from all chargebacks, but especially Friendly Fraud, which you described in your initial post. It seems like you are doing a very diligent job at preventing chargebacks caused by identity theft and stolen credit or debit cards, but the customers who order and receive the products themselves, and then file a chargeback, seem to be harder to tackle. I actually work for a company that is directly involved in these sorts of transactions, and we have learned that detail oriented customer service can really help in these cases. By creating a trail of contact with each customer, even if it’s just asking how they liked their product, or being available to answer any questions at any time, your company can create documentation that can be used to fight any attempted chargeback cases. Physical address as well as IP Address verification are also crucial parts of verifying that the purchases made were valid sales, and the customers received the products promised to them at the point of purchase. The use of Terms and Conditions that must be validated before a purchase is made can be very helpful in confirming their understanding of whatever product or service being provided to them. Our company, Chargebacks911, works with merchants who experience high rates of chargebacks and assists them in not only preventing, but also combating existing chargebacks. Friendly Fraud can be extremely frustrating, but in many cases, it can be beaten! We don’t use any automated systems to fight chargebacks, but instead we fight each case individually, using our knowledge of the transaction from which the chargeback originated. We understand how scary it can be when chargebacks threaten your business, and it has become our goal to not only show short-term results, but prove to our clients their own long-term sustainability. We loved hearing your perspective on chargeback fraud and how you’re working to combat the fraudsters.

  38. vernon broom says:

    we run a auto part brokerage, and have a no refund -exchange only policy. the card companys totally refuse to honor. people order the part ,recieve the part then charge back the card saying they arent happy with it, while they keep the part. and get their refund too. the card companys care nothing about the merchants that trust them to accept the cards then , take our money with no notice or even the ability to fight the charge back prior to the card company molesting our accounts, which the banks charge all kinds of fees, avalanching the accounts and charging fees for their taking out our funds without any regaurds to the merchants wellbeing. we need to get together and boycott accepting cards from any one for any thing for 30 days, and see if we get their attn enough to start respecting the merchants polocies on refunds. no refund means no refund, exchange only!!!!!!!!!!!!

  39. vernon broom says:

    between the charge backs and bank fees they end up with all the money. this would be a crime if i did such practices. this is theft by conversion under any other means. if i were a conspiracy nut, i would have to wonder?

  40. Binti says:

    I just received a chargeback email for a $250 credit card payment that I plan to dispute. The only problem is; I am unable to determine who the customer is, as Square only provides the last 4 digits of the credit card number. This is the 9th chargeback notification received in 2015. We have lost over 3k in revenue. It saddens me to no end the way customers have the ability to dispute credit card payments after receiving services and/or products. I am out of product, money, time, and energy. I know understand the saying “CASH IS KING”!

  41. Stephen says:

    MasterCard and Visa should force banks to use 3Dsecure and SecureCode.

    The reason the banks are not interested is because they will then suffer the costs not the merchant.

  42. Brent says:

    Got my first charge back last Monday. Funny how Amex can take 2-4 business days to deposit funds, but almost instantly take out funds for a BS charge back. Law firm customer ordered items, received 4 emails from me(Invoice, credit card receipt, and an order acknowledgement, and finally a product shipped email with tracking information). Customer received and signed for box on Friday, then calls Amex and said their credit card was stolen/fraud. Monday morning funds taken out. Called Amex to see what was up? Informed customer had initiated charge back. Tried to explain that the product that was ordered was not something someone would order for no reason, even as fraud no one would order this product. It used for litigation, not much more. The person that ordered this product even signed for UPS delivery. Rep said I had to wait for email from Amex and reply onIine to it. So I replied by making black and white pdf’s (required by amex to use as defense) of the emails and receipts, tracking and delivery signature. I evened called the law firm and tried to talk with the girl that ordered the product, she magically wasn’t in the office as soon as they asked who was calling. Left two messages , not one call back or even an email response. They are keeping the product I assume. Amex today emailed me a response today: Charge back Stands (SO1).

    So basically you can be screwed by anyone ordering off of your website. I might as well go back to offering net 20 terms to my customers. At least then i will have an extra 2 to 4% in a rainy day fund. My only recourse is to pay them a visit in person 🙂

    • Adam McFarland says:

      Hi Brent,

      Sorry to hear about your chargeback. We still have them come and go in waves (we’ll go 6 months without one, then get hit by a bunch at once). Even the best preventative measures aren’t 100% accurate. Unless you want to only accept PayPal to a verified address (where they offer seller protection), it’s going to happen.

      You could try sending a letter to the law firm threatening further action, although we’ve never had that help much. You could also send them a bill, since you know, they do still owe you.



      • Steve McCoy says:

        File a complaint with bar and a criminal case (depends on value) and/or a small claims action v. the law firm.

  43. Stefanie says:


    I own a dating service and normally get my payment for contracts through checks. I had a client who paid me through PayPal for $2500. Within days, he mentioned that if he didn’t like my services, he would ask for a refund, which I didn’t like (and should have trusted my gut) so I offered to change the contract to half the services offered and refund him $1250 via check. This contract was in mid August.

    Fast forward a month later, I give him an introduction to a woman that he treats horribly. (In a nutshell he tried to hook up with her and when she declined, he left her out in the streets to get a cab.) Needless to say, his account, was all about how she wasted his time. Clearly this is not the type of client I want in my service and he blatantly did not follow my dating protocol despite various emails and expectations that he signed off on the contract.

    I terminated him from my lawyer and offered a prorated refund for the remaining service I refused to now provide (even though he broke the contract) if he responded within 5 days. He never responded.

    Two months later, or 110 days since the credit card charge appeared, he filed a charge back against me. Despite my 50 pages of evidence of his proof that he used my service, my offer of a prorated refund, I lost because of the “type of service I provided wasn’t offered seller protection”. If I took him to small claims, I’m sure I would win, but again I can imagine this guy would skirt around paying me as I found out he’s done this (expected a refund from another dating service after using it) before.

    So, my question is; since he ONLY asked for the $1250 of his $2500 charge (even though I refunded him $1250, it was through a check, not PayPal); it’s been over 120 days, I don’t know which credit card he used (PayPal can’t tell me); so if send him to a bill collector, can he STILL try and use a “chargeback” to screw me out of the remaining $1250?

    Clearly, he doesn’t care about my threats through a lawyer, so I’m hoping if I go after him through a bill collector, I can’t put myself in a worse position since the charge is from August, so it’s over 150 days, I don’t know what the limit on chargebacks are.

    • Adam McFarland says:

      Hi Stefanie,

      Sorry to hear about your client, sounds like a bad situation. I’m not a lawyer so I would double check anything I’m about to say with an expert and would certainly advise consulting with your attorney on the best course of action.

      From our experiences, customers can use a chargeback regardless or any payments made/refunded outside of the credit card transaction. Depending upon his credit card company, it could be possible that he could file another chargeback for the remaining amount.

      The chargeback process is very opaque. Even though you provide proof of the contract, refund sent via check, etc they’ll still often rule against you (not sure how often this is automated vs a real person reviewing it). We’ve also seen them come through 100+ days later like you have. The limit seems to vary by credit card company. I wouldn’t be surprised if some allow it up to 6 months.

      That said, taking him to small claims court and/or using a bill collector seems to be your only recourse against giving him a full refund. Hopefully if he sees you’re serious he won’t push his luck and attempt the additional chargeback. You could maybe raise that possibility in small claims court and have them put it on record / in writing that he couldn’t initiate another chargeback against you.

      Hope that helps & good luck!


  44. kevin smith says:

    As someone who has worked in fraud for a major credit card company and has overseen the charge-back process for the customers, and now as a small business owner I will say reading these comments make me feel both good and bad. (let me explain). The only way a merchant will usually win a charge back is to hire a company that does this for sport, or a living, depending on how you look at it. The other thing is, customers often have buyers remorse, and generally know you will not take the item back so they file a charge back.

    The burden is on the merchant to prove the customer somehow is being dishonest. I often advised customers to print out phone logs, emails, or anything to show the merchant did not respond to your request to work out a solution, from a customer side that will always win a chargeback. From a merchant side, you need more than UPS tracking, Signatures, or proof you sent a product, more than I was a good business owner. The merchant generally needs a signed confession from the customer ( not kidding) something via text, email, etc that matches the order information, stating yes i did get it, no i did not try and send it back, something along those lines.

    Generally the police will not get involved because its a transaction between a merchant and customer, while it feels like strong arm robbery, they will tell you to take it to court, you may win, if they show up. My rule for orders online is to spend a little more time on the order, it looks to the customer as good customer service, but it is really me covering my company. Once an item is delivered, I send an email on ALL orders, Hey MR/MRS customer we noticed your ordered was delivered, if you take the time to look at it, and reply that you received it and everything is ok, we will give you 10% off your next order. The thought of getting money off 98% of the time gets a reply, saying thank you XZY, we got it today, its great, thank you the customer service. Then I reply stating your welcome please contact us if you need anything further with this order enjoy. I have as the company got the customer to admit they got the order, I also got the customer to admit nothing was wrong with the order. This has stopped a lot of charge-back claims, as we have very few, in the mind of the customer they remember sending the email, and if we get one i send them an email stating,

    HEY XZY, we got a chargeback request from your credit card company, i believe it may be an error, as we have the emails you sent stating you got the order and it was ok, can you please call them to help us get this straightened out.. This also is the start of building a case if we ever need to dispute a charge-back. As we have hundreds of online orders a day, it is a bit time consuming to do this, but i would rather spend and hour doing this, than losing $1000’s of dollars. Next, I read some people go to other measures, like threatening to call an employer etc., which if it works for you great, but as someone who’s father and uncle are lawyers, I would be careful as to not get into the, you are harassing me, threatening me, grey area, which can land you into more trouble financial trouble, lets face it, if someone is being criminal, anything you do to add to the case will help them out.

    I will say this, having been on both sides, VISA/MAST/AMEX, want to keep the people who are spending the money and racking up fee’s using these cards happy. I hope this helps the merchants out there. Remember, your best defense is to keep records if you can not hire a company that professionally deals with chargebacks.

    • Adam McFarland says:

      Kevin, thanks so much for the comment. Lots of great insight here!

      • Echo says:

        Could you please recommend a lawyer to us? For the credit card charge back on Paypal. Same situation encountered on us, 70K US dollor. It is very terrible. I appreciate for that too much if you recommend a lawyer.

        • Adam McFarland says:

          Hi Echo,

          I’m very sorry to hear about your situation. I do not have a lawyer that I can recommend you. I’d start by asking your businesses attorney for a recommendation, or searching online for specific law firms that handle these types of cases.

          – Adam

  45. Charlotte says:

    We are dealing with several repeated charge backs that are amounting to harassment with a former longtime customer. He unfortunately always paid with his AMEX at our automotive shop and as soon as we win a charge back, he initiates another one from a year prior. He has also engaged his girlfriend to make the same charge back claims. We are seeking a local reasonable attorney that specializes in these but it is hard to locate one. Unsure if our particular issue would fall under Warranty Law, Breach of Contract, Commercial Law…? In what area did the attorney you used specialize in?

    • Adam McFarland says:

      Hi Charlotte,

      We’ve just used our general business attorney, although we’ve also never taken anything to court. I would ask for a referral from any attorney that you’ve worked with in the past. I’d also ask any attorney’s you consider if they’ve had experience specifically with chargebacks or merchant fraud. I’m sure they probably exist in most areas of the country (unfortunately this type of fraud happens everywhere), but it might take some asking around to find the right person.

      Good luck!

      – Adam

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