When a consumer disputes the validity of a credit card charge, a merchant can hire a “chargeback mitigation company” to dispute the consumer’s dispute. It’s the business of a company called Chargebacks911, which the Federal Trade Commission and the Florida Attorney General have gone to court charging that the company unfairly blocks consumer claims for claims they believe resulted from fraud, illegal business practices or other questionable conduct. Efforts to challenge the allegations.
First, review the refund process. Suppose the consumer believes that the credit card charge involved fraud or unfair behavior, or the merchant fails to refund the money, or leaves the consumer struggling to get his money back. The consumer can file a dispute with the “Issuing Bank” (the bank that issued the credit card), which will then credit the refund to the consumer’s account and notify the merchant’s “Acquiring Bank.” The merchant can then dispute the chargeback by submitting documentation (a “representation”) to support its position that the charge is valid.
If the card-issuing bank agrees that the charge is valid, the consumer’s account will be debited for the disputed amount. But if the issuing bank deems the charge invalid, it will pursue a refund from the acquiring bank, which in turn collects the refund from the merchant. As with any credit card transaction, especially online purchases, the chargeback process provides important protections for consumers.
Excessive chargebacks can be a key indicator that a merchant is engaging in illegal behavior. Credit card networks set thresholds for excessive chargebacks, and merchants with high chargeback rates may be subject to additional scrutiny, penalties, or even termination from the network.
When it comes to selling its services to merchants, Chargebacks911 makes a persuasive pitch: “We don’t just claim to be experts in reducing chargebacks or resolving disputes: We’ve spent years as successful online merchants ourselves, only to see Watching chargebacks mercilessly undermine our service.” Profitability. “After honing the solution within our own business, we decided to share our wealth of knowledge and expertise with other merchants. ” A large portion of Chargebacks911’s customers are online merchants who use passive-option “free trial” marketing to promote their products—usually nutritional supplements or skin care products. What else do they have in common? Companies such as Apex Capital, F9 Advertising and AH Media, which are clients of Chargebacks911, have been sued by the FTC for using unfair or deceptive negative options strategies.
Challenging consumer disputes has always been a big part of Chargebacks911’s business. According to the FTC and Florida AG, the company challenged more than 47,000 chargebacks from Apex Capital, more than 41,000 chargebacks from F9 Advertising, and more than 77,000 chargebacks from AH Media and its affiliate Zanelo, LLC.
You’ll have to read the indictment for the details, but the FTC and AG allege that the defendants — Florida-based Global E-Trading (doing business as Chargebacks911), CEO Gary Cardone and COO Monica Eaton — used Various unfair tactics thwart consumer refund attempts due to fraudulent charges. For example, as part of representations filed on behalf of its merchant clients, Chargebacks911 has sent screenshots to credit card companies that allegedly show consumers agreeing to disputed charges. But in many cases, the screenshots were not from the website where the consumer made the controversial purchase, according to the complaint. The lawsuit also alleges that Chargebacks911 ignored red flags that the screenshots it submitted to banks were not from the same website the consumer visited when making the disputed purchase. What’s more, the FTC and Florida AG said that in some cases, Chargebacks911 did edit the screenshots to add disclosures that didn’t actually appear on the page.
according to complainFrom 2013 to 2019, Defendants used another tactic to paint a misleadingly optimistic picture of their clients’ business practices. When determining a company’s chargeback rate, credit card networks often view the number of chargebacks as a percentage of the total transaction. The lawsuit alleges that the defendants used prepaid gift cards to conduct numerous small “microtransactions” through customers’ business accounts. The FTC and the state of Florida said these were not genuine sales but sham transactions designed to falsely increase the total number of transactions and thereby artificially lower merchant chargeback rates in order to evade or delay review by banks and credit card companies.
The complaint, which is pending in federal court in Tampa, alleges that the defendants unfairly violated the Federal Trade Commission Act and the Florida Deceptive and Unfair Trade Practices Act by submitting misleading refund documents and operating its microtransaction service. harming consumers. The Federal Trade Commission and the Attorney General have asked the court to cease the defendants’ illegal activities and order monetary relief.
Even at this early stage, the filing of this case provides some important lessons for businesses:
- It is illegal to engage in this type of deceptive behavior, which often results in a chargeback. But it’s also illegal to use unfair and deceptive tactics—whether on your own behalf or as a chargeback mitigation company—to thwart consumers trying to dispute invalid credit card charges.
- Decades of federal and state enforcement against companies using misleading negative options and false “free trials” should deter others from doing business and they or for them.
- The Federal Trade Commission Act and state consumer protection regulations are broad in scope. Depending on the facts, a company may be held legally responsible if its actions result in an injury to a consumer, even if they have no direct contact with the injured consumer.
