Personal Finance

Businesses are losing $100 billion a year from ‘friendly fraud,’ report finds

Published

9 months ago

July 31, 2024

Business Finance News

Man sits on a sofa in his living room and uses a credit card to pay online.

Stefanikolic | E+ | Getty Images

When a product you ordered online arrives and it’s not up to par, you might contact the merchant to address the problem.

However, what happens if you skip that step and just dispute the credit card transaction?

More consumers are doing just that — some in bad faith to get their money back from the card issuer, even if there’s no problem with the purchase. It’s just one example of so-called “friendly” or “first-party” fraud that’s catching the attention of security and credit card companies.

Friendly fraud, when a customer disputes a legitimate charge they made on their credit card, debit card, or another payment method, is responsible for $100 billion of loss for businesses each year, according to identity verification platform Socure.

Additionally, 35% of Americans have committed first-party fraud, and 40% know someone who has, according to the Socure October survey of 1,000 adults.

Here’s part of the problem: Disputing charges has become easier for consumers in recent years, experts say, largely thanks to efforts to enhance mobile banking service in response to canceled travel and other pandemic repercussions.

“There are legitimate disputes, and the chargeback process was built to recognize and provide some sort of relief for those legitimate disputes,” said Rodrigo Figueroa, chief operating officer of Chargeback Gurus, a company that helps businesses recover revenue.

“Now we see this massive level of abuse,” he said.

Friendly fraud is a broad term

Credit card experts say identifying friendly fraud can be difficult.

“There are a lot of stats around the rise of it, but it seems like it’s almost becoming this catch-all for anything we just don’t understand,” said Robert Painter, vice president of partnerships at fraud protection platform Kount, an Equifax company. “The word fraud is sometimes even used a little loosely.”

Sometimes, there isn’t an intent to defraud, experts admit.

For example, a consumer who doesn’t recognize the merchant name used to identify a purchase on their credit card bill might dispute the charge as fraudulent. Under the Fair Credit Billing Act, this is a legitimate dispute, said Chi Chi Wu, a senior attorney at the National Consumer Law Center.

“The merchant places a charge on a credit card account and doesn’t use the commonly known name and the consumer disputes that. That’s a legitimate dispute under the law,” said Wu. “They have a right to clarification.”

Still, this scenario can be labeled as friendly fraud.

According to the Socure report, 29% of those who said they engaged in first-party fraud said it was an accident. Others said they were experiencing economic hardship (34%) or they knew someone else who had gotten away with this maneuver and gave it a try (19%).

Merchants take the biggest toll

Determining the intent of the consumer can be the toughest issue to solve for fraud experts, said Socure CEO and founder Johnny Ayers.

The company launched a consortium of banks and fintech companies in 2023 to address this, identifying data that doesn’t show up in typical credit reports in an attempt to recognize bad actors.

“We look at the number of accounts, number of disputes, number of overturned disputes, number of closed accounts. You start to stack all of these and you start to see intent,” Ayers said. “You start to see the behavior of this individual has a very large standard deviation from a normal person.”

Whether legitimate or not, experts say merchants can feel the pain from a high volume of chargebacks, when a credit card provider demands a merchant to make good on a transaction disputed by the consumer as fraudulent.

Excessive chargebacks could also affect a merchant’s ability to process cards or a credit card company could levy fines or fees against the merchant, according to Domenic Cirone, vice president of acquirer solutions at Equifax, which acquired Kount in 2021.

The Merchant Risk Council, which consists of 600 e-commerce companies, reported in April that 94% of its members have experienced first-party fraud in the past year.

Looking at Socure’s research, $89 billion of the $100 billion attributed to this type of fraud is lost by merchants. The remainder comes from credit card fraud loss ($18 billion) and the dispute resolution from the top 15 U.S. banks. ($3 billion).

‘Most folks are honest’

Before consumers make a legitimate dispute, credit card experts and advocates recommend attempting to resolve the issue with the merchant first.

Part of why filing a dispute is so easy is because a credit card issuer will often choose to accept a dispute to preserve its reputation, according to Wu.

“One thing credit card issuers really [have to] think about before they start fighting with merchants all the time is, ‘Is this going to affect the ability to retain good customers,'” she said. “I definitely hear from consumers [saying] ‘X issuer is good on disputes. They stand up for me.”

Meanwhile, fraud professionals point to social media for the jump in friendly fraud.

A TikTok search of “disputing credit card charge” results in hundreds of videos of finance influencers sharing tips for disputing charges, and even people admitting to disputing legitimate charges to get their money back.

“They just teach you how to go steal money,” Ayers said. “All they’re doing is giving how-to guides of how to work around the rules, basically to systematically steal money from these organizations in a way that made it look like it was some type of duress or distress.”

But a lot of disputes can be attributed to simple misunderstandings between the consumer, merchant and card issuer, Cirone said.

“Every time a transaction is disputed as fraud, it’s a line item that goes through the Visa, MasterCard, Amex, Discover system. That overall statistic that I’m talking about is not driven by social media,” Cirone said. “Most folks are honest. Consumers, cardholders are honest folks and I think there’s a break in communication.”

Personal Finance

Millions of older workers lost jobs during Covid. Prospects have improved

Published

18 hours ago

May 1, 2025

Business Finance News

Franckreporter | E+ | Getty Images

Millions of older workers lost their jobs during the Covid-19 recession.

Between March and April 2020, 5.7 million workers ages 55 and up lost their jobs, according to the Economic Policy Institute’s analysis of federal data.

Now, five years since the onset of the pandemic, some older workers may be benefitting from policies that help them extend their careers.

“We’re seeing more and more employers putting in benefits and programs that help retain some of that older workforce,” said Carly Roszkowski, vice president of financial resilience programming at AARP.

These programs include phased retirement plans, part-time schedules and remote or hybrid work options, Roszkowski said.

Money is still the main reason why people want to stay in the workforce longer, particularly as inflation has pushed prices higher, according to Roszkowski. But there are also other motivators, including social connections, a sense of purpose or meaningful work that may help inspire individuals to continue to work.

Working remotely may help extend careers

One lasting impact of the pandemic — increased flexibility to work remotely — may be helping some older workers delay retirement, according to new research from the Center for Retirement Research at Boston College.

The research finds that an individual who is working remotely is 1.4 percentage points less likely to retire than a worker in an otherwise comparable situation.

Based on those results, that could enable workers to extend their careers by almost a full year.

“If they delay claiming Social Security for that year, or delay digging into their 401(k) for that year, or contribute to their 401(k) for that year, that’s all going to be good for their finances,” said Geoffrey Sanzenbacher, a research fellow at the Center for Retirement Research and professor of the practice of economics at Boston College.

73% of Americans are financially stressed

Whether or not individuals can work remotely comes down to employer preference. For example, some companies — JPMorgan, AT&T, Amazon and Dell — have moved to five-day in-office policies. The federal government, which has a workforce that skews older, has also moved to enforce in-person work policies under President Donald Trump.

Research suggests older workers benefit from remote work. In particular, the employment rate of older workers who have a disability increased by 10% following the pandemic, according to the Center for Retirement Research.

To be sure, not all careers may allow for remote work.

What career experts say to do now

Career experts say there are certain ways older workers can help extend the longevity of their working years.

Older workers should focus on upscaling — gaining new skills or boosting their current skill set — to help show off their skills to employers, said Vicki Salemi, career expert at Monster. That may be through a certification, online class or volunteering, she said.

Having a foundational, basic understanding of technology tools used in the workplace is also essential, said Kyle M.K., a talent strategy advisor at Indeed.com.

Older workers may also want to show off their relationship building skills, which can set them apart from younger generations that are more digitally inclined, according to Salemi.

Mentoring, conflict resolution or other interpersonal skills are highly sought after skills that should be highlighted, where possible, M.K. said.

By keeping digital profiles up to date on job search sites, older workers can emphasize their skills and experience, he said.

“Digital presence is sometimes the very first introduction that the employer will have with you,” M.K. said.

Personal Finance

Here’s what your student loan bill could be under a new GOP plan

Published

18 hours ago

May 1, 2025

Business Finance News

U.S. Secretary of Education Linda McMahon smiles during the signing event for an executive order to shut down the Department of Education next to U.S. President Donald Trump, in the East Room at the White House in Washington, D.C., U.S., March 20, 2025.

Carlos Barria | Reuters

House Republicans have a plan to drastically change how millions of Americans repay their student debt.

Under the GOP’s new proposal, known as the Student Success and Taxpayer Savings Plan, there would be just two repayment options for those with federal student loans. Currently, borrowers have about 12 ways to repay their student debt, according to higher education expert Mark Kantrowitz.

If the GOP plan is enacted, borrowers would be able to pay back their debt through a plan with fixed payments over 10 to 25 years, or via an income-driven repayment plan, called the “Repayment Assistance Plan.”

Under the RAP plan, monthly bills for borrowers would be set as a share of their income, said Jason Delisle, a nonresident senior fellow at the Urban Institute. The percentage of income borrowers’ would have to pay rises with their earnings, starting at 1% and going as high as 10%.

House Republicans unveiled their agenda to overhaul the student loan and financial aid system at the end of April, in an effort to tout savings for President Donald Trump’s planned tax cuts.

Here’s what monthly bills for student loan borrowers could be if the proposal becomes law.

What’s new about the GOP student loan payment plan

Personal Finance

This lesser-known 401(k) feature provides tax-free retirement savings

Published

20 hours ago

May 1, 2025

Business Finance News

Don Mason | The Image Bank | Getty Images

If you’re eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say.

For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in “catch-up contributions” if you’re age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63.

Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit sharing and other deposits.

If you can afford to do this, “it’s an amazing outcome,” said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts.

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“Sometimes, people don’t believe it’s real,” he said, because you can automatically contribute and then convert the funds to “turn it into tax-free income.”

However, many plans still don’t offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard’s How America Saves report. It’s most common in larger plans.

Even when it’s available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That’s down slightly from 10% in 2022.

How to start tax-free growth

After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there’s a key difference: The taxes on future growth.

Roth money grows tax-free, which means future withdrawals aren’t subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn.

That’s why it’s important to convert after-tax funds to Roth periodically, experts say.

“The longer you leave those after-tax dollars in there, the more tax liability there will be,” Galli said. But the conversion process is “unique to each plan.”

Often, you’ll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said.

Upper-income consumers stressed: Here's why

Focus on regular 401(k) deferrals first

Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina.

After that, cash flow permitting, you could “start filling up the after-tax bucket,” depending on your goals, he said. “In my opinion, every dollar needs to find a home.”

In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.