One of the nicest perks on my credit card is making me a jerk

I recently found myself in such a situation. I bought yet another inane thing I really do not need that I will not name because it is slightly embarrassing. Before anything had shipped, I reached out to the seller to call the whole thing off. Unfortunately, I was denied. Annoyed, mostly at myself but also a little bit at the seller, I had a sinister thought: What if I file a dispute with my credit-card company? I could try to initiate a charge-back, say the shipment was taking too long or I’d ordered it erroneously, and maybe get my money back. Perhaps I could even get to at least try the thing I was pretty sure I didn’t want, but hey, if it was free. To be clear, I did not do this, and I don’t know whether it would have worked. But I seriously considered it.

The bank plays the umpire and decides what to do with the money.

One of the best perks of my credit card — the ability to dispute a transaction to get a refund — had almost turned me into a bit of a jerk. Without knowing the term for it, I’d weighed engaging in first-party fraud, colloquially known as “friendly fraud,” an increasingly common phenomenon where customers, accidentally or intentionally, dispute legitimate transactions as fraudulent with their credit-card issuer or bank.

A credit-card charge-back happens when a consumer sees something they don’t like or recognize on their statement and asks the bank to look into it. The bank then investigates the claim and decides whether to issue a refund — under federal law, a consumer can’t be on the hook for more than $50 for an unauthorized charge. The merchant can respond, too, if they have proof that the transaction was fine. The bank plays the umpire and decides what to do with the money — maybe it takes it back from the merchant and gives it to the customer, maybe it makes the consumer cough the money up, after all, or maybe it pays out both parties and eats the cost itself.

“Charge-backs are a huge problem for many merchants. That’s not something they can just sweep under the rug,” said Oscar Bello, the chief sales officer at Chargeback Gurus, a company that helps merchants navigate charge-backs and manage disputes.

There are plenty of legitimate reasons to file disputes and initiate a charge-back, first and foremost, for a transaction that was made by a fraudster, not the consumer. There are other fair explanations, too — there was a billing error, the product or service wasn’t delivered as promised, the transaction wasn’t authorized in the first place.

Then there are charge-backs that can toe the line, ethicswise, or even tip into fraud by the cardholder. People lie and say they didn’t get a pair of shoes delivered, even though they did, or they say the shoes came damaged, even though they were fine or had a tiny bit of damage but were still plenty wearable. Perhaps they cancel a restaurant reservation and dispute the cancellation fee, even though the penalty was listed plainly on the restaurant’s website. Or a person paid to have their car fixed up and then said the workmanship was shoddy. In those instances, the customer is engaging in fraud or crossing a questionable line, but it can be hard for credit-card issuers to tell what actually happened. It can be quite the ordeal to trace whether a shoebox shipped in the mail wound up in the buyer’s hands, let alone for a bank to decide whether all the work an auto-repair shop did was necessary and good.

There’s no “silver bullet” for figuring out who’s in the right in every instance of a consumer dispute, said Domenic Cirone, the vice president of acquirer solutions at Kount, a fraud-prevention company owned by Equifax. And as much as artificial intelligence is helpful, he added, you often need people to sift through the data and complexities. And, he said, most consumers are well-meaning.

Charge-backs and friendly fraud aren’t new issues, but they’re ones exacerbated by e-commerce. It’s a lot easier to say that the sweater you got at the Gap never arrived than it is to claim you bought it at the store and, I don’t know, forgot to take it with you or suddenly realized once you got it home that it sucked. A 2023 report from Ethoca, a Mastercard-owned platform that helps merchants handle fraud and disputes, said charge-backs in the US could reach $15.3 billion by 2026, more than double the $7.2 billion in 2019. Much of that is friendly fraud: The report cited a statistic from the data-analytics company Datos Intelligence that 75% of all the fraud digital businesses see is first-party fraud.

Beyond the e-commerce explosion, some other factors have made friendly fraud more commonplace. Consumers are increasingly using disputes for service-related issues — a product showed up damaged, or a service wasn’t up to snuff. Inflation and economic pressures may also make the prospect of disputing a charge more appealing.

What’s more, people are constantly paying through digital transactions that are really hard to keep track of. Perhaps they don’t remember making a purchase, or their kid put something on their card and didn’t tell them, so they mark the charge as fraudulent even though it wasn’t. Last year, I almost committed accidental friendly fraud against an airline because I forgot I’d paid to check my bag and tried to dispute the charge before realizing it.

“It’s really quick and easy to check out, which is great because we love that as consumers. That leads to a lot of transactions,” Robert Painter, the vice president of global channel sales at Kount, said. “The old adage, more money, more problems, right? So in addition to that, there’s confusion.”

Of course, what’s happening here on the end of consumers is not always confusion — sometimes, it’s taking advantage of the system.

Customers now, what we found post-COVID, are very trigger-happy on the dispute system.

Kevin, an entrepreneur who asked me to keep his identity protected because he was worried his business partner would get mad at him for talking to the press, has lost thousands upon thousands of dollars and endless hours on what he believes are frivolous and often fraudulent disputes. One of his gigs is selling tickets for a swamp tour near New Orleans. According to Kevin, people who go on the tour have disputed charges because they claim they didn’t see enough alligators. Or customers of his auto-transport company, which he recently sold, disputed claims because their vehicles arrived a day or two later than desired or, in one case, because a driver didn’t speak “good” English. Essentially, some people are using disputes as a review system, and if they don’t give the experience five stars, they tell the credit-card company they want their money back. Kevin has won charge-backs before — he recently succeeded in pushing back against a cancellation claim after customers agreed to move their tour time but then backed out at the last minute. More often than not, however, he loses, and regardless, the whole thing is a huge time suck.

“Customers now, what we found post-COVID, are very trigger-happy on the dispute system,” Kevin said.

Kevin is not above using questionable dispute tactics as a consumer himself (he recognizes the irony here). He recently successfully disputed a $200 charge from a golf course after being told he couldn’t change a tee time.

The ability to dispute transactions is generally a nice benefit of credit cards and one that most consumers use as a last resort once they’ve tried to talk to the merchant (if they can get ahold of them). Still, it’s weird that Citi or Amex or whoever ends up playing arbiter in charge-backs because the business incentive is to prioritize the customer over the merchant. It’s hard to feel bad for big businesses that might lose money on a transaction that barely registers on their records, but for smaller businesses, this can really be a strain.

In some cases, there’s a pretty clear line between what is fraud and what’s not, what’s a legitimate charge-back and what isn’t. Your online order never arrived, and the customer-service number never picked up: legitimate. Your order arrived and you claim it didn’t: fraud. Right or wrong, many cases never get litigated out to the end, anyway.

“Not every merchant is equipped to fight,” Bello of Chargeback Gurus said.

There’s some gray area, too. If you place an order and it arrives in 12 days instead of the 10 days promised, you might very well win in a dispute. Is that really fair? Mmm.

I do not know whether my dispute on the mystery item would have been approved. (It was some stupid health supplements I saw online, OK?) But I wouldn’t be shocked if it did. I’ve never disputed a purchase before, and my credit-card company would like to keep me happy. I do not think I would have felt particularly bad about initiating a charge-back, either, since the supplements industry is unregulated and scammy anyway. That doesn’t mean it would have been the most awesome thing for me to do.

Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.