Merchants: Beware of Fraudulent Refund Requests

When I say "credit card fraud" you think about stolen card numbers and identity theft. There's another kind of fraud, and if you accept credit cards you need to be highly aware of it. Here's how it works:

You get a call from someone with a common name. Think John Smith, Jenny Jones or Hector Sanchez. The caller claims that his bank asked him to call your law firm to get a check refund for a debit card transaction dated the "15th".

Sounds legit. Except the caller never bought anything from you. You can bet that if you cut a check, you'll never get your moneyback. Seems obvious? It's not, and incidents of "refund fraud" are rapidly increasing for service businesses like law firms who are often easy marks for scammers because either they are new to taking credit cards or simply aren't used to dealing with fraudsters.

Fortunately stopping refund fraud is easy. By following a few very simple rules you can save your firm thousands in lost money and time:

  1. Only give card payment refunds by crediting the customer's credit card. Never issue a check or hand out cash for any credit card transaction, even if you know the refund actually is legitimate. This prevents the customer from being able to charge back the credit card transaction after they've been given a refund by check. Limiting card refunds to the card used to pay prevents fraudulent refund demands cold: a scammer will quickly give up when they realize that you are not going to give them money back in a form that they can use.

  2. Always check your sales history to ensure the person claiming to be your customer is actually is your customer, and has actually paid you before issuing a refund. Invoices and receipts are easily doctored with modern photo editing software, making it easy for scammers to present what looks like legitimate paperwork.

  3. The California Attorney General's office suggests checking an ID before issuing a refund. Checking an ID is a very good way to ensure that your customer's credit card is controlled by someone who has stolen your customer's identity.

  4. If all else fails, and the alleged customer is insistent about the refund, suggest that he or she take it up with whoever issued the credit or debit card. If there is a legitimate charge, you will get a chargeback notice. If not, you'll never hear from the fraudster again.

Mike Seidle is the Chief Technology Officer for VPS, a firm that specializes in credit card processing for law firms and other professional service companies.

Written by Mike Seidle on 15th Oct, 2012