A lot has been written about credit card fraud by fraudsters around the world who get your credit card information and put bogus charges on it. Or they lure you into signing up for what appears to be a good deal or free trial of a product, subscription, or service, but then you are charged for something you don’t get or for a free trial that turns out not to be free.
But the credit card scam that has not received much attention is the one where clients and customers obtain products and services by charging a card and later claiming fraud to get their money back. This is particularly a problem for merchants, service providers, professionals, and freelancers who get their clients online.
I started thinking about this problem after two experiences with credit card fraudsters. Since the early days of Internet commerce, I have run two mostly-online businesses, where I haven’t met most clients. Typically they pay by a credit card, debit card, PayPal or occasionally mail a check. The model has worked well for an Internet-based business since 2000, where I write and ghostwrite for clients all over the world and also help clients find publishers, agents, and film industry contacts by sending emails for them to contacts who might be interested in their projects.
For over 15 years, I received only two complaints — one from a woman with a course who later claimed she wanted something different from what I wrote and another from a client who couldn’t sell his book from a mailing to publishers, though there are no guarantees. In both cases, I proved I did the writing and mailings by providing voluminous email exchanges, so I won my cases and kept my money.
But in the last year or so, the rules seem to have changed, perhaps due to all the Internet fraud cases, where people have lost money to sleazy fraudsters, described at length on the FBI website. The site lists the major scams that target unwary customers and clients. So now it appears that a person just has to claim “fraud” and usually they will win, even in the face of extensive email evidence, since they can readily lie and claim fraud where none existed to get a product or service for free. However, there are some steps business people can take to reduce the potential for fraud against them.
I began thinking about this problem after I got two complaints in the last four months from devious clients. In one case, a woman and her husband hired my email service to pitch a book proposal, and after four dozen publishers and agents expressed interest, the husband asked me to review a proposal he had written. When I told him the proposal was badly written, he asked me to rewrite it, and after I wrote much of it and charged the card number he gave me, he asked me to write more. But his card was declined for the additional charge, and after he and his wife gave me all kinds of excuses about not finding another card to pay me, they claimed they had gone over budget and would I take the balance in trade. But after I said no, not only did they not pay the declined charge, but they filed a claim that they hadn’t authorized the original charge or participate in the transaction. So I sent my merchant account bank a detailed letter about our extensive exchanges with 380 supporting pages of emails and material I had written as proof, and my bank reversed the chargeback. But after the couple again lied to their bank, reaffirming their original claim, my bank reversed the reversal, so they got back their money. And compounding the fraud, I learned they used the proposal I had written to sell their book to a publisher.
Later, a loony client for whom I had written a bio and foreword for her book abandoned the project after a personal emergency. And she, too, got her money back by claiming fraud, even though she sent me an email with her credit card information, authorizing me to charge it for doing the work she asked me to do.
So what can merchants, service providers, professionals, and freelancers do to avoid being victimized by client and customer fraudsters in long-distance, online transactions?
1) Get payments in cash, cashier’s check, money order, or check.
2) Create a verified by Visa or Mastercard order form on your website, which the person has to sign online to authorize payment.
3) Ask a customer or client to sign an online purchase agreement form or send the signed form to you by fax or mail.
4) If you process credit card payments through a terminal or call it in to a processing service, ask for the security code, as well as the address and zip code, even if not needed to authorize payment. This added information can help show that the buyer authorized the payment and participated in the transaction.
5) Keep a copy of all email exchanges and anything sent to you by mail, since this evidence can bolster your case.
6) File a report of the fraud – or attempted fraud if you win – with the appropriate agencies and reporting services. These might include the Better Business Bureau where the client’s or customer’s business is located. If their business needs a license, complain to the state agency licensing that business, such as the state bar or contractors agency.
7) List bad clients and customers with an online service that lists fraudsters, such asFraud Report.. You can also tip off the FBI, Secret Service, and police fraud units, though they are apt to consider this initially as a civil case; but as reports mount up, these agencies may turn this into a criminal matter.
8) For an ongoing project, talk to the client or customer from time to time by phone or email to reconfirm that you will charge for additional work and send ongoing bills.
9) Get the client or customer to confirm in writing any request for additional work and the expected charges.
10) Be alert for any signs of customer or client problems, such as indications of financial difficulties or the client changing his mind or abandoning the project.
In short, you may not be able to prevent all frauds by determined and resourceful client and customer fraudsters. But you can reduce the likelihood they will successfully defraud you.