The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Countering Friendly Fraud: Legal Remedies for Chargeback Fraud | Disputed Transactions | PEP047
If you’re a merchant and you want help with chargebacks, this episode is for you! Friendly fraud is anything but friendly for merchants. In this eye-opening discussion, expert payments attorneys Larry Haines and Bryce Van De Moere expose the growing epidemic of customers who receive goods or services, then fraudulently dispute legitimate charges with their credit card companies. It’s chargebacks, baby – and they’re a growing problem.
Banks allocate mere minutes to review chargebacks and overwhelmingly side with cardholders—approximately 97% of the time—regardless of evidence presented. For merchants left holding the bag, this creates a seemingly impossible situation. But there's hope in pursuing legal remedies directly against these fraudsters.
The attorneys reveal powerful strategies for merchants to fight back, including litigation that can recover up to triple damages plus attorney's fees under California law. They explain how mechanics liens (which despite the name, aren't just for auto repairs) provide strong protection for anyone who provides labor or materials improving real property—from contractors to plumbers to classic car restorers.
Most compelling is their insight into the psychology of these fraudsters. Many are serial offenders whose confidence grows with each successful chargeback, escalating from small disputes to brazen theft. Picture someone staying at a hotel for three weeks, paying a $10,000 bill, then disputing the entire charge despite completing their stay.
For merchants tired of being victimized, this podcast offers a roadmap to recovery. With proper documentation and legal guidance, businesses can not only recover what's rightfully theirs but also develop a reputation that deters future fraudsters. The attorneys recommend focusing on disputes exceeding $5,000-$10,000, where the cost-benefit analysis favors legal action.
Ready to stop letting fraudsters walk away with your products and services? Learn how to turn the tables and make them pay.
Visit Global Legal Law Firm today: https://www.globallegallawfirm.com/
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
A payments podcast of Global Legal Law Firm
We have a lot of cases where people bring classic cars in and get all the work done and then the client drives off in the car and then decides that they're going to charge back when we can prove that the parts are in the car. So again, I have to believe that the majority of people that behave like this are like serial fraudsters, because nobody is sophisticated enough, I think, to do this on their first try, especially with the larger chargebacks, like their hubris or arrogance, I guess, maybe just multiplies over time and they think they can get away with it.
Speaker 2:Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoy this episode. Very excited, today we have in studio joining us Senior Associate Attorney Larry Haynes, as well as Senior Associate Attorney Bryce Vandermoor. Gentlemen, we're talking about friendly fraud today. We're looking forward to this topic. Jump right in.
Speaker 1:What we're here to talk about today is kind of a phenomenon that I've been experiencing for about a year now, which is where clients or merchants are coming to us and they have provided a service or provided a good and they can prove that. But the um, the customer, for whatever reason, decides to charge, to charge back and because you know, banks and in charge back situations are, nine, nine times out of ten, always going to side with their cardholder uh, they end up approving the charge back and the merchant is then faced the choice of having to approach or go after the fraudster personally, which I prefer, uh, but you know they want. What they come to me asking for is if I can, if I can, approach the bank and ask them to reverse the charge back, which means I basically take the money back out of the fraudsters account. And it's a very hard sell, especially when you are dealing with a bank who has absolutely no financial incentive to assist you at all. And these people want their money, they deserve their money, they want a quick resolution and the banks just aren't providing it.
Speaker 1:So, more and more, I'll send one letter, two letters and then that's it, and I start promoting to my clients that we approach the fraudster directly. And I personally think that if I knew I did something, I knew I stole something, and then I get served with a complaint by a sheriff and I know I have no defense, I would assume that they're going to roll right over and want to negotiate, because they I mean, what's their defense going to be like? We, you know the one where, like the, the beams were put in the house and he, he charged back like three hundred thousand dollars. Anyway, when there's pictures of of the beams in the house, it's like it's holding their house.
Speaker 2:They're there at this house exactly, exactly.
Speaker 1:So, like you know what's he going to do and I guess we're going to find out pretty soon.
Speaker 3:But yeah, I think it's rather funny. You call it friendly fraud. That's kind of like friendly fire, you know, in wartime. Well, there's nothing friendly about your own artillery dropping rounds on you. There's nothing friendly about these people doing fraud, but we call it friendly fraud based on the fact that it's people that are supposed to be doing business with you.
Speaker 3:So one of the things that you can do here in California, for example, there's actually some statutory authority that says that if someone steals something from you you can sue them. There's a private cause of action and it's kind of nice because statutorily you can collect up to three times however much they stole from you and you can get an attorney's fee. So that can get rather pricey. So somebody steals $10,000 worth of goods or services, doesn't want to pay for it they still owe it so you can sue them and you can collect up to $30,000 and attorney's fees and sometimes, if you go all the way through trial, that could be another $20,000, $25,000. It's a good hammer to hit them with so that they want to settle the case and make the merchant whole.
Speaker 1:Especially when it becomes clear that they are going to be liable or possibly going to be liable for fees and costs way beyond the amount that they took. And we understand that this is a difficult decision for a lot of merchants. Committing to a lawsuit, committing to litigation, is a difficult decision but in my mind it is the fastest way from point A to point B and I've been working with Larry and we're trying to devise a system or a protocol where we can approach these people and get the maximum amount of bang for the buck.
Speaker 3:Right and you know, as it comes to lawsuits, these are not particularly complex because basically it's you took it, you didn't want to pay for it. We proved you didn't want to pay for it because you charged it back and your chargeback reason is invalid and basically you just think that you're going to be able to walk away with whatever you got. You know you get the hotel room, you decide you want to charge it back. You've got the goods, you've consumed them. Now they're gone, you don't want to pay for them.
Speaker 3:There's some people that do this on a regular basis. There are professional chargeback people and you know many of them. Of course, one of the things we have to make sure of is is it worth pursuing? Because when you first think about suing somebody, okay, let's assume we win and we collect checks and financial checks to determine if somebody is worth suing and if they are, you know, if they own a house here in California, they own other assets that can be a source of a payment for a judgment. We'll give that advice to our clients and move forward. I would say that probably 95% of the time, if we're going to file, we're not going to try that case. It's never going in front of the jury they're going to settle. Oh, absolutely.
Speaker 1:Again, what is their defense? So anyway, that uh, and also I think we were discussing um can the need for a mechanics link some of these?
Speaker 3:yeah, if, uh, if somebody for example, if you are a subcontractor or you are a contractor and you're doing work for someone's house or you supplied the goods to put into the house you know you sold the plywood to somebody and it went into that house you have a mechanics lien right to that real property. So there are some short time frames I believe it's uh 60 or 90 days that you have to make your lien. So if you come to us early and you've got somebody that's done the chargeback, first thing you want to do is actually record a lien and that gives you the right. Then once they ever refinance or they sell, that's a lien on the house and that's something to come back After a judgment. If they don't want to pay and they have real property, that judgment can be recorded and then again carrying 10 interest that starts adding up much better than you get at a bank. Um, you know you can actually secure your right to recovery yeah, and my, my individual research reflects that.
Speaker 1:I think that you can extend the timeline for a mechanics lien to when the chargeback actually happens, because you've been paid. And now the bank is coming in and saying, now that they're disputing the charge, we're going to put this money in an escrow account while you guys adjud, you know, adjudicate this and you know and find fault. And so my thought is that my suspicion is and I want to put it into, I want to test it is that you know, once that money is, once that chargeback is approved against you and they take that money, I think that is when, like, another 90 days starts running and you can actually. So basically, like I said, you can file a canning lien way beyond the initial 90 days if they charge back because you had the money.
Speaker 1:I also want to make something clear. I don't think I did before. I want to make sure merchants understand this. Just because a bank approves the chargeback when you've produced copious amounts of evidence to the contrary, it doesn't mean that the debt is not still valid. It just means that the bank does not want its credit card associated with it. You're on your own. So I don't want people to think that just because the chargeback went against them, they're not still entitled to those funds, because they absolutely— Exactly.
Speaker 2:Oh, so I'm so sorry, larry, go ahead.
Speaker 3:Okay, if you have a chargeback on a credit card, that's no different really than somebody burning you a bad check or somebody who gives you a counterfeit money. You know, once you determine that it's not being paid, then your right of recovery exists.
Speaker 2:It's a very important point. You know we've had on this very podcast former clients of ours, chargeback gurus, and their entire business model is chargebacks. That's all they do, day in, day out. They told us on Pretty Good Authority that they think maybe five minutes at most is spent reviewing these chargeback disputes. Five minutes and on top of that something like 97% of the time they're siding with the cardholder, no matter what the facts are showing, Of course, and they're going to still collect their $25 chargeback fee on you, even though they're you know they're responsible.
Speaker 3:Yeah, I mean, it's the path of least resistance and, frankly, the credit card company or the bank, who's their customer? Who do they want to make happy? It's going to be the person making the chargeback. Yeah, absolutely.
Speaker 1:So that's where we're at, and this is an area that we would really like to explore. This is something that Larry and I are really interested in. So if you are interested in it and you have been denied a charge back and you have all the documentation proving and you're sitting there scratching your head about how this could happen, please, give us a call.
Speaker 2:That's super important. This is great guys, great information. Can we once again just kind of in a recap, this mechanics lien first. I've ever heard of this. Sounds like an awesome mechanism. Can you maybe talk just a little bit more? Heard of this. Sounds like an awesome mechanism. Can you maybe talk just a little bit more? How is it done?
Speaker 3:How easy. How come this hasn't come up before? Would you guys talk a little bit about that? Well, outside the context of credit card chargebacks, a mechanics lien is available to anybody who provides labor or material to real property, and what that does is it basically puts a lien on the real property because you've improved that real property through your labor or your materials and that gives you an opportunity to get paid.
Speaker 1:Yeah, did you know that mechanics lien does not just apply to mechanics?
Speaker 3:Yeah.
Speaker 1:It's a term of art.
Speaker 2:Right, it's a term of art.
Speaker 1:So yeah, I mean, if you provide a good, you provide a service, you provide the material for the service.
Speaker 2:So yeah.
Speaker 1:I mean, if you provide a good, you provide a service.
Speaker 2:You provide the material for the service. So just to be clear, this is not going to help necessarily our e-commerce friends who are selling services, or let's just say goods, that are drop shipped from China.
Speaker 3:It's going to be really if there's an actual mechanical if, they're yeah. If if the transaction has to do with real property and the improvement of real property, that is one one uh avenue of if you will securitizing your, your debt yeah, like plumbers, electricians, contractors, laborers, uh, landscape professionals, anybody that that provides a service, that that where they can show that that it was.
Speaker 1:We had another one tutors, you know, like, like the members. Members are at yeah. So yeah, I mean, maybe it doesn't apply, but come and talk to us first and we'll find out, we can figure it out.
Speaker 2:Yeah, I'm thinking of auto guys guys that sell custom auto parts that go into cars absolutely so.
Speaker 1:One of the you know again uh falling under the under the uh rubric of uh mechanics lean, it actually does, it actually does apply. We have a lot of cases where people bring classic cars in and get all the work done and then the client drives off in the car and then decides that they're going to charge back when we can prove that the parts are in the car. So again, I, you know, I have to believe that the majority of people that behave like this are like serial fraudsters, because nobody is sophisticated enough, I think, to do this on their first try. It's especially with the larger chargebacks like their. Their hubris or arrogance, I guess, maybe just multiplies over time and they think they can get away with it because nine times out of 10, it's starting to look like they can.
Speaker 3:Yeah, I mean you go to a hotel, you, you, 10, it's starting to look like they can. Yeah, I mean you go to a hotel, you're there for three weeks, you have a $10,000 bill, pay it with a credit card and then, as soon as you get home, you charge it back. Just say I had a horrible time. It was dusty, it was yeah.
Speaker 1:But I still stayed the whole week. But I still stayed on the property, I didn't leave. Yeah, but I want all my money back. That's just not right, absolutely not right.
Speaker 3:So there's really no reason just to just to take that one and consider it a loss.
Speaker 1:If you talk to us, we might be able to recover for you. And, believe me, this is not something that I really I don't. I don't sit every sit in my office every day wondering how can I drag more people into litigation, but these banks just will not, won't refuse to get involved because there's no money in it. That is what, how much? What's in it for them? And if there's no, there's just no incentive. And so this is, this is a way that we think to actually get the power back in the hands and maybe, maybe, if these people get hit a couple of times, they'll stop doing it.
Speaker 3:Or people start finding out that there are people that are doing this and they're getting whacked for larger amounts than they actually stole. Yeah, and and hell.
Speaker 1:I mean we'll be happy to document our success on the website. You can see, you can see how it's going.
Speaker 2:Absolutely, and I think that you make a great point. You can have merchants too. Word gets around and some of these small niche, you know markets for these merchants. Word gets around. Hey, if you charge back against this merchant, they're coming after you, yeah.
Speaker 3:Yeah, One of the areas that I've seen a lot of chargebacks and it always seems unfortunate for the merchants are Airbnb people that have Airbnb. They will, you know, they're small business people and they somebody is there for a week and they've charged $2,000. And the next thing, you know, they turn around and just say Nope, didn't enjoy this day, Too much dust. I saw a mouse outside, you know there was a funny smell and that's not right.
Speaker 1:And here's kind of a warning on Airbnb, because I didn't realize this, because I don't use it. But if you decide to do Airbnb, take a very good look at your agreement and make sure that if whoever's running your property decides that they're going to try to skip out on the charges, that you have a right to go after them, because Airbnb is not going to get in the way.
Speaker 3:Yeah, unfortunately, airbnb will unilaterally just yank money back saying, oh, they didn't have a good time, not my fault. Yeah, you got a roof over their head. You know everything was fine. And the next thing, you know they just don't want it.
Speaker 2:Sorry, yeah, you know everything was fine and the next thing, you know they, they just don't want it, sorry. Yeah, well, guys, this is uh super interesting and and very excited to see where this goes. Um, as you heard, please, if you have a merchant and you've had a chargeback, what would you say, gentlemen, in terms of might be a minimum amount of the chargeback that would you think would maybe make this worth? It is a certain dollar ballpark you think we could mention probably.
Speaker 3:Uh, five to ten thousand dollars would be the minimum, because that gets people's attention. That could be anywhere from fifteen to thirty thousand dollars, and then you start adding the attorney's fees. At the end it gets nasty and it's not a complex complaint.
Speaker 1:It's not going to take a lot of time drafting a complaint.
Speaker 1:The filing fee and service by the sheriff is going to cost what like $150, it's not much well for one defendant maybe even $75 to $100, not much that's for the service, by the way, it's not for the complaint. And the thing is we're going to be out of business tomorrow. That's what we're trying to do. I mean I'd like to, but I mean we would be out of business tomorrow. So there we're at. That's where we're at right now and we'll be happy to come back in a future podcast and let our listeners know how things are going.
Speaker 2:Great, very grateful, gentlemen. We've had today in studio Senior Associate Attorney Larry Haynes as well as Senior Associate Attorney Bryce Vandermore. Gentlemen, this was great. We look forward to the next one and thanks again for joining us, thank you, thank you. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at globallegallawfirmcom.