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Shocking Real Life Case Study Fraudulent Claims and Chargebacks - How You Can Handle Them

Michelle Dale - Friday, December 08, 2017

chargeback fraud

First of all, if you or someone you know sells any digital products or services online, please share this with them so they can begin making sure they put measures in place now that could save a lot of time / energy / money / worry / stress etc... in the future. I didn't even consider this quite shocking experience could ever happen to me, but it did... With this information you might be able to stop it happening to you, or someone you know.

This is the second time (of only 2) in almost 13 years of doing business online - I’ve done a post relating to fraudulent activity online before, the first was in 2014, relating to Plagiarism

But this time, it’s about something I think I'll call ‘Unpoliced Theft’ basically in the form of PayPal Claims and Credit Card Chargebacks.

What do I mean by 'Unpoliced Theft'? Let’s say you’re a shop owner, and I walk into your store and I purchase a chair from you. I pay you in cash, you place the cash in the till, and you put the chair in my car. I go home, use the chair (enjoy using it! In fact it’s the most awesome chair ever!) but then I decide to keep the chair, using it often, and go back to the shop and grab the money out of the till, which I previously used to pay for that chair, essentially keeping the money and the chair.

You'd say this is a crime, wouldn't you? Yes it is, and something very much like this is happening every day online, with very little the sellers can do about it. In the last few weeks I've been at the receiving end of a scenario similar to the above, not with a chair of course, but my online services.

Since I’ve never, in all my nearly 13 years of doing business online had to defend myself like this against a claim or chargeback, I was about to get a crash course in this process, and also how to protect oneself as best we can against the people that do this.

In this post I’ll be sharing the following:

  • The Real Impact of this Problem.
  • Collating a Defence Case Study.
  • My Chronological Series of Events.
  • Key Pointers - you might use to prevent this from happening.
  • Key Pointers - I used that may help you protect yourself, if it does happen to you.
  • Conclusion...

The real Impact Of This Problem

When I refer to the impact of this problem, the problem being when someone does a fraudulent chargeback... 

Financial Impact

Depending on the circumstances, this can upset someone's entire business banking setup - rendering them incapable of doing business, paying their team etc… It can impact more than just the victim of the claim / chargeback but also the people who rely on them.

Impact on People's Lives

Depending on how you handle stress and worry, this could seriously tip you over the edge, it’s an incredible stress to undergo when you have to defend yourself for no good reason. It can consume your thoughts, and affect those around you.

Unfair To Other Buyers

If everyone went around doing this then there would be no online business, and therefore it would impact all the good that we can do via the internet. Not to mention, the whole time I was piecing my case together, it was taking me away from helping and supporting others, wasting everyone's time.

Potential consequences to buyers

According to an article in Forbes you can become blacklisted by certain retailers (e.g. ClickBank will blacklist customers with reasonable cause straightaway), and if the card issuer believes you're violating the card agreement repeatedly, you may lose your account with them. Forbes have also published an article on VISA Chargeback rules coming into play in April 2018 to "include proactively eliminating invalid disputes" among other things. 

It hurts the person doing it

Cases like mine show indications that the person doing the chargeback (without good cause or reason) is out to hurt, and when you’re out to hurt others - nothing good can come from that - for anyone.

I could think of more, although those are the core problems with this scenario.


Collating a Claim / Chargeback Case Study

Please note, as a courtesy we informed the buyer I would be doing this post if they went ahead and made the fraudulent claim / chargeback - you see, there was a familiarity, confidence and clinical approach to what the buyer was doing, so if I was going to go through all this, then I wanted something good to come out of it at least, and even if this only helps one person, then it’s all worth it. Here’s what we said:

When collating a defence case study for response, keep it factual, not emotional, even though you may feel upset, have a stiff drink and look at it impartially, being emotional isn't going to help you, it will go against you because opinions don't matter here, evidence does - go through the buyer's claim, piece by piece, responding with only the facts and hard evidence at each point. 

The first point I made was the fact the buyer asked us to address her by a different name from the start, this meant a lot of my evidence was not in her 'actual' name, it was in a name she requested we call her, that didn't match her Credit Card or Claim, so that was the first item I addressed on my introduction, along with the important details like case numbers and a table of contents. Here's the screenshot from the top of my case:

When I formulated my case I put it on a Google Doc and exported it to PDF, and I put my buyer's quotes in red, and then my responses under each one, like this:

For example:

The buyer said “ABC”

Here is the evidence / facts ABC.

The buyer said “DEF”

Here is the evidence / facts DEF.

The buyer said “GHI”

Here is the evidence / facts GHI.

In the case of a payment processor like PayPal, when you submit the evidence, call them and ask them to review it to make sure that you haven’t missed anything important or crucial. PayPal I have to say were awesome, and handled everything quickly and professionally with me, the same day someone reviewed my evidence and asked me for additional information which I was able to submit straightaway, which moved the case along quicker.

My case study was comprehensive. I took screenshots of all the important pieces of evidence and added them to the Google Doc (the one I exported as a PDF), I then put a whole bunch of supporting things in a Google Drive folder and added the link to the Case Study Google Doc.

1) The case study PDF turned into a total 45 pages long - PLUS...

2) 10 full length video calls with the buyer in them.

3) I had a total of 20 additional individual PDFs of customer support emails, spanning several months and over 200 pages.

4) Chat history records from every call.   

5) 17 screenshots of various pieces of digital evidence showing the buyer was using the programme.

6) Video Screenshots of every single call (I was lucky because the buyer was a good student, in that she attended all of them).

7) Countless examples of praise, thanks and appreciation from the buyer.


Chronological Series of Events

The first thing that went through my mind when this happened, was wondering how long this was going to take to resolve? So I thought I would give you a breakdown of my actual timeline, and note the little surprise at the end I wasn’t expecting.

This is in a nutshell...

25th July 2017
First Purchase from the buyer.

25th September 2017
Second Purchase from the buyer.

16th November 2017
Confirmation with the buyer of the final appointment to complete the entire programme of the first purchase.

November 17th 2017
Buyer sent first threat / blackmail email demanding money for first purchase.

November 20th 2017
Buyer opened PayPal Dispute Case for both purchases.

November 21st 2017
Escalated to PayPal Claim for both purchases. 

November 21st / 22nd / 23rd 2017
I submitted my evidence in my defence on both cases.

November 24th 2017
PayPal closed the cases in my favour, resolved. All's well...


Just when you think lightning never strikes in the same place twice…

December 4th 2017
I get this from a colleague who also sells training programmes online:

“Hi Michelle, Sterling filed a dispute on stripe for a full refund of ****** under the 60 day money back guarantee. I already gave her 50% back and told her she wasn't entitled to that because she broke an agreement in term 2.1 which says if that happens she isn't due a refund due to the extra work incurred and that I was doing it out of a goodwill recognition that it was early days. But of course, she still went for it!”

December 5th 2017
I get this from (another) colleague who also sells training programmes online:

“I received a dispute inquiry via Stripe last week, November 28th, for Sterling's ******** payment. A chargeback hasn't been officially processed. I've submitted evidence via Stripe today to prevent the chargeback.”

December 6th 2017
A chargeback comes through to my PayPal account for the exact same purchases the buyer filed claims with previously, and it all begins again…


Note when a claim or chargeback is made, PayPal withhold the money from your account, so you essentially either lose your money or go into negative balance - temporarily if you win, permanently if you don’t.

So this buyer has submitted not one, not two, but 3 Simultaneous Claims/Chargebacks to three different organisations at the exact same time (is it just me, or is there a pattern here? And those are just the ones I'm aware of...) I imagine if these were all on the same credit card then that would look rather suspicious, although with different cards, it may go unnoticed by the card issuers.

I called PayPal immediately because naturally I thought this was all resolved on November 24th, and to my understanding it's not possible to open a claim with PayPal for the same transaction, twice, as their decision is final. But it turned out it was only resolved within the walls of a PayPal claim, and the buyer basically ignored their verdict and took it directly to the card company, but because of this, PayPal will be submitting the case on my behalf to the credit card issuer, if this wasn’t the case I had a plan to utilise a company such as chargebacks911.com (I found this article on their website quite insightful) to help me out (or point me in the right direction) for submitting a “rebuttal letter”, which is what the card company need to review the case, but it has to be very specifically created, something I’m not equipped for, so hire a professional and don’t try that at home folks!

So in my case (as I'm writing this), PayPal have 30 days, and the card issuer up to 75 days in complicated scenarios to come to a decision. I’ve been told it should be much quicker and I’ll update this post for you when it does finally get resolved.

As this is going via PayPal, I've been told I am fortunate enough to have these particular transactions covered by what they call "Seller Protection" which means that if the card company does decide in the buyer's favour, then the money will be returned to me either way under PayPal's Seller Protection Policy (at least some justice, yay!) This is because both purchases meet their seller protection criteria.  

Why is this a fraudulent claim? Well, to start with both cases were decided in my favour, there was no legally valid reason for the chargebacks on my account.

PayPal state on their website “When a customer files a chargeback with their credit card issuer, it means that they’re disputing a charge and asking the card issuer for a refund.

A customer might file a chargeback because they:

Didn’t receive their item.
Received a damaged or defective item.
Don’t recognize a credit card charge.
Were charged more than once for something.
Didn’t authorize a payment.”


None of these are applicable in my case.


How do you prevent this from happening?

I’m sorry - you can’t.

I’ll elaborate. There are many things I value in high regard in my business, which probably means that my history of issues is pretty immaculate.

a) Always deliver of the product / service exactly as described - or ideally, better ;-)

b) Provide impeccable, human customer support.

c) Care about your buyers / customers and treat them as you'd want to be treated.

I like to think in each of these areas, I go over and above. I do, I’m proud of this, and of my team too.

But this won’t stop people from making fraudulent claims or chargebacks, and we can only speculate on why they would do it - especially repeatedly & what appears to be systematically, but what I’m going to share with you next will make it likely that you'll win, despite whatever craziness comes your way.


How do you protect yourself if it does happen?

I want to arm you with whatever I can to help you be able to quickly resolve this if it does happen to you, or someone you're close to. If you can't do all of these because the nature of your sale / business doesn't allow it, do as many or as much as you can.

1 - CLEAR REFUND POLICY

If you have a refund policy, you must always follow it, and if the buyer is not entitled to a refund for whatever reason, ensure that you get that in writing from them before you move forward and allow the customer to make a purchase from you. In my case, if I do any “In person custom work" where I’m physically present with an individual for a specific programme, then I don’t offer a refund, I consider this quite different to 'digital only' programmes, so we’re sure to get this in writing from the buyer to be confident they understand this and agree to it.

Here's the example from my defence case study:

2 - CLEAR, DETAILED AND ACCURATE RECORDS

I am a stickler for record keeping, maybe too much, but it’s worth it. Keep records of all the correspondence with your customers, for example, this email was sent in to us shortly before the claim was made. I also like to use a support site called Zendesk, as the technology doesn’t allow any editing of sent / received emails. 


Here's one example (from hundreds of pages) from the defence case study:

And also take screenshots of particularly awesome social media feedback, it'll be good for your business anyway to note these somewhere, but you also never know when they can be used as evidence, here's one example of a Facebook post from my case study:

3 - MULTIMEDIA EVIDENCE

This is great tip for coaches, or consultants. If you do online training or coaching then be sure to use a service like Zoom (this really was brilliant) where you can record the face and voice of the customer, like one example of many from my case study, I did this:

1 - I have removed the identities of the innocent people in the video evidence for this blog post.

2 - Clearly identified myself (the seller).

3 - Clearly identified the buyer.

4 - Included the case ref. number.

I put each of the 10 videos like this on a web page and laid them out as they are below.



If you're using a tool like Zoom be sure to use “Gallery View” at least once if it’s a group call, because if the customer isn't visible, it may not be considered evidence they were on the call.

Also highlight any recent engagement to show that things were all 'normal' - for example, I pointed out from the mound of emails, the buyer had confirmed a scheduled call with my assistant for me later on, just the day before she sent me a threatening letter demanding her money back... 

4 - CLEAR DESCRIPTION OF THE PRODUCT

In my case the first claim via PayPal was “Item not as described” so be sure to make your descriptions clear and provide evidence that you deliver exactly what you're offering. In the case of digital programmes for example, I diligently listed out each module / lesson and backed it up with each deliverable the customer received. Here's an example below:


Plus I also included a lot of evidence showing the buyer was using the programmes and very happy with her purchase. Here's just one example (of many) clearly showing this, I don't feel you can ever add too much in these cases:


5 - DISCLAIMER

This part didn't happen with me really, but I think I should add it - some people may claim you promised a certain result, so be sure to have a disclaimer with testimonials such as, “PLEASE NOTE: Results experienced are not typical consumer results and results may vary” and a disclaimer in general with some rock solid terms, conditions and privacy policy on your site. Here's mine:

http://www.virtualmissfriday.com/small-print

6 - YOUR CLAIMS

Anything you claim you 'do' or 'have done' in writing, be sure you can prove that your claims are factual.

For example, everything I claim on my sales pages, I've written, and I provided audio and video evidence to prove the buyer's “she said / she claims” statements referring to me, were all false or inaccurate where applicable. I'll say this again - I never, in any circumstances on my website, sales pages or multimedia say I do or have done something unless I can ‘prove’ it with physical evidence or via a person who can testify it's true / accurate. The buyer took things from my website and creatively reworded them to mean something very different, which I was able to prove were fabricated.


7 - DIGITAL BACK END

Be sure to use a system that keeps records or feeds of your buyers' history, so you can prove they logged in, prove they opened the emails, prove they downloaded or used the product, etc… I use Adobe Business Catalyst, here's an example of a screenshot, or digital evidence of the buyer logging in and using the system:




8 - PAYMENT PROCESSOR

I was very lucky, not all payment processors are created equally. If this had been Clickbank for example, I probably wouldn't have the opportunity to defend my case against the chargeback, as with payment processors like Stripe, the card issuers decision is final, so if they go in the buyer's favour, you lose the money, but with PayPal they offer Seller Protection in certain cases and a great service - so I am very happy, sorry elated actually, that this payment was made via PayPal, but that's not always the case. I will say though, that I’m a true believer in expecting the best, so I wouldn’t chose a payment processor purely on the idea that people will do this to you! Like I say, this is my second chargeback in almost 13 years, the first was a woman who bought my products, plagiarised all my content and then did a chargeback :-/


9 - MULTIPLE ACCOUNTS

Let’s say you’re a solo business owner, and you have 1 PayPal account, 1 Business Bank Account and 1 Debit Card. What if tomorrow, you couldn’t use those because of a significant chargeback… That would suck. Get at least one other account where you can send and receive money from, that you can use until the case is resolved. Otherwise you could be in a position where you can’t properly use your account for a period of up to 105 days or so. Fortunately after the first PayPal claim, I created another PayPal account so I could at least have the possibility of paying my team and other essential bills, but there was something interesting that happened, worth noting...

On the PayPal Dispute, they automatically take the balance into negative, and my business payments were bouncing (I disconnected my card and bank account as a precaution, in advance due to the buyer's threatening emails). But on the Chargeback, the second time around, I see a payment was processed normally in my PayPal account, the only difference I can see is I have my card still on there, from when I put it back since the first dispute / claim.

Conclusion

In all honesty, there was / is so much more to this (vastly more than what's here) - I’m being super polite too, because I want to restrict this to a useful, informative blog post for you without my personal feelings on the matter clouding it. So I've given you everything I think will be super-important for you to consider when you conduct business online, particularly as a service provider, and I’ll leave it at that!

More to come... I'll be adding more to this post as the events unfold, sharing with you further important details about the resolution of the (3) currently active chargeback cases the buyer filed against me, and two of my colleagues, to best help you with understanding every step of this process.

Do please leave me a comment if this has ever happened to you, if you found it helpful, or you have any questions etc... :-)



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Hi I'm Michelle, an entrepreneur specialising in virtual assistance, a digital and real world nomad, and a down-to-earth mother of three.



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