Buyer-beware scams are in the headlines every day, but a growing number of buyers are ripping off businesses by reversing charges on their purchases. This is a seller-beware scenario.
Imagine you run a precious metals store and a customer wants to buy $3,000 worth of gold via wire transfer. You verify their identity, complete the sale and hand over the gold. All by the book, right?
Not quite. A month later, the customer calls their bank to dispute the charge, claiming they were tricked into buying the gold by a third party.
The bank is convinced by the customer’s story, cancels the wire transfer and withdraws money from your merchant account, leaving you without payment — and your store down $3,000 worth of gold, which is hard to trace.
The same thing can happen with customers who request the reversal of electronic fund transfers (EFTs) or credit card charges. Such transactions are called “friendly fraud” or “chargeback fraud.”
The customer may indeed have been the victim of a scam, or be pulling off a scam themselves. Either way, your business is left with a loss.
Unfortunately, it’s not an uncommon occurrence, particularly for businesses dealing in precious gems and metals, which are frequently targeted in scams.
Here’s what happens and how to protect your business.
Banks typically allow chargebacks or payment reversals only under certain conditions:
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Unauthorized transactions. The customer claims they didn’t authorize the purchase.
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Billing errors. The charge was duplicated, incorrect, or charged in the wrong amount.
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Fraudulent activity. The purchase was made under false pretenses or through deception.
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Failure to receive goods or services. The item was never delivered, was defective, or didn’t match the description.
In many cases, banks default to protecting the consumer, especially when fraud is alleged. However, with wire transfers, often considered final and irreversible, the rules are more complicated and the reversal takes more time.
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Some banks will allow customers to file a complaint and launch an investigation, especially if they claim they were defrauded or coerced into making a purchase.
