One Weird Trick to Get Your Credit Card Charge Reversed? Fraud.

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1:18Bloomberg Audio Studios. Podcasts. Radio. News. Amanda Mull has been covering retail for years. She's tracked the demise of American malls, the explosion of fast fashion brands, and recently, a growing sense of distrust between customers and merchants. People feel like they're being scammed left and right. Sneaky subscription services that are hard to get out of. Restrictive return policies. Products that just don't meet expectations.

1:49Amanda Mull:It's a consumer environment where you feel like you have less and less purchasing power, less and less ability to talk to another human about a problem you're having. So people look for ways to get back at retailers. One of those ways is something called a chargeback, essentially disputing a credit card transaction. It is when you go to your credit card issuer and go, hey, there's a problem with this transaction, or I didn't buy that, or I don't recognize this. I want you to reverse the charge. I'm not paying for this. Pushing back on a credit card charge isn't new. But Amanda found that it is happening more and more and more.

2:28Amanda Mull:From 2021 to 2025, the rate of chargebacks in the U.S. rose about 29 percent. And worldwide, it rose about 46 percent. Some of that is due to a greater number of credit card transactions overall. But most of that is because people are disputing more transactions for a variety of reasons. Reasons that range from the legitimate. Hey, I ordered this thing online. It never showed up. Yeah. They are not giving me a refund, but I didn't receive the product. To the deceptive. Yeah, I bought this, but I don't want to pay for it. So I'm going to tell the bank that it was fraudulent, that it never arrived, that there was an issue with it.

3:07Amanda Mull:So I will just get this for free. I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, how the rise of chargebacks is putting merchants on the defense and pulling banks into the fray. And what this growing trend says about shopper psychology and the health of the economy overall.

3:28For consumers, filing a chargeback can feel like a quick and easy path to getting a refund. But behind the scenes, it actually triggers what can be a long and complicated process.

3:40Amanda Mull:The bank goes to the merchant and goes, you have a transaction dispute. It charges them a fee, which can be, you know,$10,$15,$20, depending on the situation, depending on the vendors involved. And the bank investigates. The bank goes, OK, merchant, do you have a tracking number? Do you have shipper information? Can we contact the shipper? And then a lot of times for a very inexpensive transaction on the other end of the spectrum, the bank may look and go, OK, you can have your$20 back. It's going to cost us$20 of labor to even start to look into this. So, like, we're not worried about it. OK, so the rate of these chargebacks is increasing.

4:16And you looked at some of the reasons why. The biggest example being chargebacks that begin with a simple misunderstanding, what you call friendly fraud.

4:25Amanda Mull:Yeah, so you've bought something as a consumer in what the banking industry calls card not present transactions. So that's like all of online shopping plus things that like feel not so much like online shopping, but actually are, which is like ordering an Uber, ordering DoorDash, like anything you use an app for that like even if it summons something in real life, that is a card not present transaction. If you let your teenager put your card in Apple Pay and they start using it for stuff, because card not present transactions tend to bounce through a lot of like payments vendors in third parties, what they show up as on your credit card statement is sort of anybody's guess.

5:02Amanda Mull:So you might look at all of those things and go, I don't recognize any of these names. Who spent$50 on the App Store? Like, not me. Like, why would I do that? And you're like, where did that charge come from? I need to dispute that charge. And then there's also the issue of subscriptions. A lot of retailers will include seven days free or one month free and then a recurring$12 every month that you may agree to in like, it's a legitimate transaction in a legal sense. But like, you missed that. It was put in a place where like, it was designed for you to miss it. Or you sign up for a free trial, you forget to cancel, but you meant to cancel.

5:38Amanda Mull:Right. You meant to cancel. And you look at your credit card statement and it feels like someone has stolen money from you. Yeah. So all of these transactions are disproportionately likely to be subject to chargebacks when in reality, none of those are fraud. Chargebacks have become really easy to file. Many banking apps have a button that lets you dispute a transaction. Consumers can often feel it's worth a try, given that low barrier to entry and the high likelihood of getting a refund on a low-dollar transaction. Especially if you have a premium credit card that's sort of like baked into the service, where it's like, OK, if you're disputing$7 on the app store that you don't think you bought, that's probably just getting refunded.

6:20Amanda Mull:The credit card wants to keep you happy. And also, like, it is a very labor and time intensive process to investigate credit card transaction disputes. So if below a certain dollar amount and that can vary across card issuers, they just decide that, like, hey, we're just going to honor these. So you also talked about this other category of chargebacks where people are basically intentionally using them to get free stuff. Yes. Talk about this not so friendly fraud. How prevalent is this and how does it work? Well, it's growing in prevalence, I would say. What you see with this type of intentional sort of malfeasance is generally younger consumers.

6:59Amanda Mull:You know, TikTok is a place where young people go to sometimes invent classic types of fraud from first principles. And this is another one. You know, TikTok tries to take these down as they come up. But there's a lot of people on various social platforms telling you that like, oh, if you're like upset with how long shipping is taking, do a chargeback. If you're upset with how long it's taking them to approve your return, do a chargeback. One weird trick to get your money back is fraud. But what you're describing is that, in part, this could be a nefarious impulse to get one over on a retailer.

7:38And in part, it's responding to this feeling that consumers have that inflation is rising, companies are shrinking the size of their products and charging the same price. There is this feeling among consumers, I think, that they're getting scammed. Right.

7:54Amanda Mull:Whether or not those scams are legally actionable, having subscription fees baked into everything in a way that, like, is constantly surprising and is hard to opt out of is, like, a bad consumer experience. It feels like being stolen from, even if you as a company, you as a merchant followed the letter of the law. Like, getting rid of your customer service agents in order to divert everybody to an AI bot that like can't answer specific questions about non-standard policy issues. Like that feels like you are being, as a consumer, sort of shunted into a system designed to keep your money, even when something has gone wrong and you deserve some sort of redress or just want to talk to a person.

8:36Amanda Mull:Like when you were spending your paycheck, like you were supposed to have some sort of power in those transactions like that. The American system is designed to tell you that that is where you assert yourself. And if it gets harder and harder to do that and things get more and more misleading and you feel like you don't have options for redress, you can see how people justify just reversing transactions. Yeah. Using the chargeback as a way to claw back that power. And you might get a couple things that way. Like you might get a couple free t-shirts, It's free app store stuff. But like overall, banks also, you know, card issuers look at who is filing a lot of chargebacks and they will close your account.

9:17Amanda Mull:If you are doing it in a really egregious way, I don't think it's beyond the horizon of possibility that they will report you to law enforcement if they think you're doing it in a felonious way. And to be clear, because this is illegal. It is illegal to erroneously file a chargeback when you have not been defrauded. Yes, it is illegal to claim that you were a victim of that crime in order to gain a financial advantage over a merchant. Yeah, hear that? Hear that, kids? Yeah, it's illegal. You know, there's a variety of consequences that can happen because of this. Like, you can have your credit card closed, which will ding your credit report.

9:57Amanda Mull:Like, you will be in bad standing with that financial institution. And then also depending on like where you're doing the chargebacks, like they might decide that they don't want you as a customer anymore. You know, people get very mad at airlines. And whether or not a service was rendered as promised is sort of in the eye of the beholder when it comes to the travel industry, the hospitality industry. But if you file a chargeback against Delta or against United, they might decide not to do business with you in the future. The same is true of hotels. Like if you were filing like a lot of chargebacks against these large businesses that have reason to suspect that you are filing them in a punitive way instead of because of a real issue, like they can choose to close your account.

10:40Amanda Mull:They can choose to ban you from their service. Like you can get banned from Amazon. People who do this a lot often have their purchasing options curtailed in certain ways. After the break, the consequences of the chargeback craze for retailers, banks and society.

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12:34So we've talked a lot about consumer psychology here, but I want to also talk about what this all means for merchants. What has the rise of chargebacks meant for these companies, either the big retailers like Amazon or the small businesses that are experiencing this?

12:50Amanda Mull:For big retailers, big companies, big merchants, to a certain extent, they're just going to roll it into the overall price levels that they charge. Like it is the cost of doing business. A lot of them have engaged third-party vendors, specialists who have particular AI capabilities to separate the wheat from the chaff in these complaints and figure out which ones they actually need to deal with versus which ones they can sort of ignore or just ban that customer or something like that. So third-party companies that work with them to identify chargeback fraud? identify chargeback fraud and to sort of do the work of like gathering evidence and presenting a case to the bank and like trying to sometimes reach out to the customer and figure out if there's a way to come to a understanding before you know things go further because if retailers incur too many chargebacks like that is a problem for them payment processors don't want to work with companies that incur a lot of chargebacks that makes you a high-risk merchant and it means that you were going to have to pay higher transaction fees to credit cards.

13:54Amanda Mull:And it means that you were going to have to keep larger cash balances in escrow to deal with disputes that come up. These merchants are hiring these third-party actors. How much is that costing them? It costs a lot of money. For a lot of vendors, there's going to be a per-investigation fee. And then there's the sort of general retainer. And the onboarding a vendor into your very large business is always quite expensive. I don't have like a specific number because it really depends on the size of the business, the suite of services, but it is an enormously expensive thing because chargebacks are enormously expensive.

14:28Amanda Mull:If you lose a chargeback that you shouldn't have lost as a merchant, you're out the penalty, you're out the revenue, and you're out the product or the time. So it's expensive to fight chargebacks, but not as expensive as it is to lose a chargeback claim. Yes. For small merchants, the impact is more direct. If someone files a chargeback against you as a merchant, you are getting charged the chargeback penalty by the bank even if you win the dispute. That's$15, let's say, out the door immediately. And what about banks? What does it mean for banks to be sort of in the middle of this negotiation, this tug of war?

15:07How are they responding to the rise of the chargeback?

15:10Amanda Mull:Sort of like merchants, they are employing a lot of like new types of technology to sort of like figure out which are the disputes that they need to focus on that deserve manpower, that deserve an actual investigator, which ones are the ones that they can like deny pretty quickly and which ones are the ones that they should go ahead and probably approve pretty quickly. There's various types of technology, various types of vendors that do that as well for banks. And then really your recourse as a bank, if you're not going to refer someone to law enforcement, if it's not a situation where there's like a massive scale of these fraudulent chargebacks, then if someone is abusing the system and creating a lot of work for you as a bank in a way that looks like probably like potentially criminal activity, then you can just close their account.

15:51Amanda Mull:And then like the payment processors also are trying to identify bad actors on the merchant side. A company that is constantly being disputed is probably doing something that like makes you not want to associate with them as a processor. Help me understand how big of a deal this phenomenon is. Like, is this something that's a warning sign about our economy writ large? that all this money is flowing into this chargeback economy, that trust between consumers and merchants is breaking down like this? I think it is a big deal. Like, I think that the financial implications for it, especially for small businesses, like, are a really big deal.

16:29Amanda Mull:We're talking about, like, hundreds of millions of transaction disputes. It is a really large number annually. And that's a lot of money that is sort of being sucked into this, like, weird gray area of, like, maybe it is involved in fraud, maybe it is not. But it's an indicator that like our interactions with the economy have gotten more confusing and more stressful. And more broadly, I think it is just like another indicator of trust that undergirds a lot of elements of like living in a functional society is breaking down. Like we have sort of, I think, lost a sense of like who it is we're dealing with and that, you know, whether or not there actually is a human on the other end of that transaction.

17:12Amanda Mull:and it makes us a little bit less trustworthy to each other. And I think it motivates people to act in untrustworthy ways. This is The Big Take from Bloomberg News. I'm Sarah Holder. The show is hosted by me, David Gurra, and Juan Ha. The show is made by Sean Carter, Aaron Edwards, David Fox, Jeff Grokot, Patty Hirsch, Rachel Lewis-Kriskie, Emma Munger, Laura Newcomb, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Shaven, Victor Sweezy, Alex Sugiura, Julia Weaver, Yang Yang, and Taka Yasuzawa. Our executive producer is Nicole Beamster-Boer. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer.

18:00If you like this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back on Monday.

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