Personal Finance

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

Published

7 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.

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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

Trump plan to freeze funding stymies Biden-era energy rebates for consumers

Published

11 hours ago

February 26, 2025

Business Finance News

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Some states have stopped disbursing funds to consumers via Biden-era rebate programs tied to home energy efficiency, due to a Trump administration freeze on federal funding enacted in January.

The Inflation Reduction Act, passed in 2022, had earmarked $8.8 billion of federal funds for consumers through two home energy rebate programs, to be administered by states, territories and the District of Columbia.

Arizona, Colorado, Georgia and Rhode Island — which are in various phases of rollout — have paused or delayed their fledgling programs, citing Trump administration policy.

The White House on Jan. 27 put a freeze on the disbursement of federal funds that conflict with President Trump’s agenda — including initiatives related to green energy and climate change — as a reason for halting the disbursement of rebate funds to consumers.

That fate of that freeze is still up in the air. A federal judge issued an order Tuesday that continued to block the policy, for example. However, it appears agencies had been withholding funding in some cases in defiance of earlier court rulings, according to ProPublica reporting.

In any event, the freeze — or the threat of it — appears to be impacting state rebate programs.

“Coloradans who would receive the Home Energy Rebate savings are still locked out by the Trump administration in the dead of winter,” Ari Rosenblum, a spokesperson for the Colorado Energy Office, said in an e-mailed statement.

The U.S. Department of Energy and the White House didn’t return a request for comment from CNBC on the funding freeze.

In some states, rebates are ‘currently unavailable’

Consumers are eligible for up to $8,000 of Home Efficiency Rebates and up to $14,000 of Home Electrification and Appliance Rebates, per federal law.

The rebates defray the cost of retrofitting homes and upgrading appliances to be more energy efficient. Such tweaks aim to cut consumers’ utility bills while also reducing planet-warming carbon emissions.

California, the District of Columbia, Maine, Michigan, New Mexico, New York, North Carolina and Wisconsin had also launched phases of their rebate programs in recent months, according to data on an archived federal website.

All states and territories (except for South Dakota) had applied for the federal rebate funding and the U.S. Department of Energy had approved funding for each of them.

The Arizona Governor’s Office of Resiliency said its Home Energy Rebates programs would be paused until federal funds are freed up.

“Due to the current federal Executive Orders, memorandums from the White House Office of Management and Budget, and communications from the U.S. Department of Energy, funding for all Efficiency Arizona programs is currently unavailable,” it said in an announcement Friday.

Rhode Island paused new applications as of Jan. 27 due to “current uncertainty” with Inflation Reduction Act funding and executive orders, according to its Office of Energy Resources.

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The Georgia Environmental Finance Authority launched a pilot program for the rebates in fall 2024. That program is ongoing, a spokesperson confirmed Monday.

However, the timeline for a full program launch initially planned for 2025 “is delayed until we receive more information from the U.S. Department of Energy,” the Georgia spokesperson explained in an e-mail.

However, not all states have pressed the pause button: It appears Maine is still moving forward, for example.

“The program remains open to those who are eligible,” Afton Vigue, a spokesperson for the Maine Governor’s Energy Office, said in an e-mail.

The status of rebates in the eight other states and districts to have launched their programs is unclear. Their respective energy departments or governor’s offices didn’t return requests for comment.

‘Signs of an interest’

While the Trump administration on Jan. 29 rescinded its memo ordering a freeze on federal grants and loans — two days after its initial release — the White House said the freeze nonetheless remained in full force.

Democratic attorneys general in 22 states and the District of Columbia filed a lawsuit against the Trump administration, claiming the freeze is unlawful. The White House has claimed it is necessary to ensure spending aligns with Trump’s presidential agenda.

David Terry, president of the National Association of State Energy Officials, said he is optimistic the rebate funding will be released to states soon.

“For these two particular programs, I do not think [the freeze] will stymie the programs,” Terry said. “I see signs of an interest in moving them forward and working with the states to implement them.”

Personal Finance

Social Security Fairness Act benefit increases to arrive this spring

Published

12 hours ago

February 26, 2025

Business Finance News

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Lump sum payments to begin arriving in February

In a new update released on Tuesday, the SSA said it will begin issuing retroactive payments in February. Most people will receive the one-time payment by the end of March, according to the agency.

The SSA plans to process the increase to monthly benefits starting in April.

The new timeline “supports President Trump’s priority to implement the Social Security Fairness Act as quickly as possible,” Social Security acting commissioner Lee Dudek said in a statement.

“The agency’s original estimate of taking a year or more now will only apply to complex cases that cannot be processed by automation,” Dudek said. “The American people deserve to get their due benefits as quickly as possible.”

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Among those affected include some teachers, firefighters and police officers in certain states; federal employees who are covered by the Civil Service Retirement System and people who worked under foreign social security systems, according to the Social Security Administration.

What affected beneficiaries should know

Retroactive payments, which most people should receive by the end of March, will be deposited directly into bank accounts on file with the Social Security Administration.

All affected beneficiaries should receive a notice by mail from the Social Security Administration with details about their retroactive payment and new benefit amount. Those notices should come two to three weeks after the retroactive payments, according to the agency.

If your direct deposit information or current mailing address are up to date with the agency, no action is needed, according to the agency. If you want to double check the information the agency has on file, you may sign into your personal online account or call the agency.

If you want to ask about the status of your retroactive payment, the Social Security Administration urges you to hold off until April.

Beneficiaries should also wait until after they have received their April monthly check before contacting the agency to ask about their new benefit amount.

Personal Finance

The average IRS tax refund is 32.4% lower this season. Here’s why

Published

1 day ago

February 25, 2025

Business Finance News

The average tax refund is 10.4% lower than last year according to the latest Internal Revenue Service data, and inflation is taking more of those dollars.

Bill Oxford | E+ | Getty Images

The average tax refund this year is down 32.4% compared to last year, according to early filing data from the IRS.

Tax season opened on Jan. 27, and the average refund amount was $2,169 as of Feb. 14, down from $3,207 about one year prior, the IRS reported on Friday. That figure reflects current-year refunds only.

However, the Feb. 14 filing data doesn’t include refunds receiving the earned income tax credit or additional child tax credit, which aren’t issued before mid-February, the IRS noted. The previous year’s filing data included tax returns claiming these credits. The value of these tax breaks can be substantial, even resulting in five-figure refunds, in some cases.

Typically, you can expect a refund when you overpay taxes throughout the year via paycheck withholdings or quarterly estimated payments. By comparison, there’s generally a tax bill when you haven’t paid enough.

Filing season numbers will ‘even out’

Although the average refund is currently smaller, “historically, filing season numbers even out as more tax returns come in,” according to the agency.

As of Feb. 14, the IRS received roughly 33 million individual tax returns of the more than 140 million it expects before the April 15 deadline.

As of Dec. 27, 2024, the average tax refund for the 2024 season was $3,138, compared to $3,167 in late December 2023.

‘Don’t call the IRS’ for refund updates

The latest filing statistics come amid mass layoffs for the agency as Elon Musk’s so-called Department of Government Efficiency, or DOGE, continues to cull the federal workforce.

It’s unclear exactly how the staffing reduction could impact future taxpayer service. But experts recommend double-checking returns for accuracy to avoid extra touch points with the agency.

“Don’t call the IRS looking for your refund,” said Tom O’Saben, an enrolled agent and director of tax content and government relations at the National Association of Tax Professionals.

You can check the status of your refund via the agency’s “Where’s My Refund?” tool or the IRS2Go app, which is “available 24 hours a day,” O’Saben said.

Typically, the agency issues refunds within 21 days of a return’s receipt. But some returns require “additional review,” which can extend the timeline, according to the IRS.