At first glance, the term “friendly fraud” seems like an oxymoron. Those of us who have experienced fraud know there’s nothing remotely friendly about its.

Yet friendly fraud is indeed a real thing. It robs businesses and ultimately consumers to the tune of billions every year.

But the wildest part? Perpetrators not only get away with it; in many cases, they never even find out they’ve done something wrong!

What Is Friendly Fraud?

This type of fraud occurs when a consumer files a credit card chargeback for a transaction they genuinely believe was fraudulent. It’s not malicious in nature.

Common reasons for this include a consumer:

• Forgetting about the purchase

• Not recognizing the merchant’s display name on their statement

• Not realizing that a family member used their card to make the purchase

People commonly confuse this with chargeback fraud, which occurs when a consumer intentionally files a fraudulent claim with the goal of keeping the product and their money.

There are a number of strategies merchants and banks use to identify this sort of fraud. Those who do get caught can face major penalties, although it’s generally difficult to prosecute such cases (1) and so perpetrators may be more likely to face a ban from the merchant or cancellation of their credit card account.

Friendly Fraud, On The Other Hand…

The issue with friendly fraud is that it contains none of those fraud markers.

As such, banks and credit card companies automatically assign a reason code for the chargeback which suggests to the merchant that the chargeback request is legitimate. (2)

In many cases, the amount of money lost on a single case of friendly fraud is so small that it would cost a company significantly more to investigate the claim – even when you factor in the $20-$100 fee merchants get slapped with by their bank every time a chargeback happens. (3)

Even if the sum of money is significant, it’s difficult (and expensive) to prove friendly fraud occurred.

And thanks to consumer protection laws in the United States, unless a merchant has convincing proof of fraud, they can’t challenge a chargeback. (4)

As such, millions of consumers ride off into the sunset every day, oblivious to the damage they just caused a business.

How Big Of A Problem This Is – And Why You Should Care

Experts believe that most chargebacks are cases of friendly fraud (6). They predict that the impact of this on merchants will reach $25 billion annually by 2020.

What’s more, this impact increases at a rate of 41% every two years (6).

These are big numbers – and even well-intentioned consumers who keep track of their purchases are inconvenienced by the magnitude.

For one, companies don’t just eat the cost of dealing with friendly fraud. Instead, they get passed along to you in the form of more expensive goods and services. (7)

Further, the entire credit card ecosystem becomes more of a drag to use as companies attempt to protect themselves.

You may find that purchases get marked incorrectly as fraudulent by a merchant who would rather play things on the safe side. The merchant may go as far as to hold shipment of your purchase until you provide them with proof that you are who you say you are.

How To Avoid Friendly Fraud As A Consumer

One also can’t avoid the negativity of actually committing friendly fraud; first, you might feel shocked at the prospect of your credit card or identity being stolen. You may worry about your credit score.

Then, you’ve got to go through the process of having your credit card cancelled and a new one issued to you, which takes time and requires you to update numerous subscriptions you may have.

It’s not a fun experience, to say the least.

But while merchants and credit card companies are struggling to come up with a large-scale solution for friendly fraud, you can protect yourself (from both the negative experience of committing friendly fraud and, albeit in a small way, the increased costs and hardships associated with the practice as a whole) in a number of ways.

Consider:

• Categorizing, as much as possible, transactions as they occur using a financial tracking app like Intuit’s Mint

• Saving your online shopping receipts in a specific email folder so you can access them quickly in case you need to double check a transaction

• Avoiding submitting thoughtless chargeback requests out of convenience; instead, really think about a chargeback before you submit it