A new study that examined which US cities experience the highest rates of chargebacks for credit card disputes is sounding alarm bells about bank consumer habits.
The study, conducted by risk management firm Chargebacks911, found levels as high as 2.2 percent of total transactions resulting in chargebacks for one city, a figure the company described as “alarmingly” higher than the threshold set by Visa and MasterCard at 1 percent.
Show Low, Arizona holds the top spot with that 2.2 percent figure; Port Washington, New York saw a 1.7 percent chargeback rate, while San Jose, Miami and Astoria, New York all saw a 1.5 percent chargeback rate.
Chicago, Los Angeles, Houston and Orlando were also all on the list of cities with the top-five highest chargeback rates for 2013. The figures were calculated as a percentage of disputed transactions resulting in a chargeback out of 500,000 total transactions.
Chargebacks911 co-founder Monica Eaton-Cardone believes these spikes in chargebacks are the result of so-called “friendly fraud,” a practice in which a consumer makes an authorized purchase but then attempts to reverse the charge by claiming fraud.
According to the executive, up to 86 percent of chargebacks may be the result of friendly fraud.
“We’ve found that 58 percent of cardholders never contact the merchant before filing a transaction dispute, and another 28 percent only contact the merchant after the dispute had already been filed,” Eaton-Cardone said, adding that consumers who do not contact the merchant before filing a claim with their bank “suggests a potential for dishonesty or laziness.”
Eaton-Cardone says the practice is exacerbated by the fact that banks may actually be encouraging friendly fraud by offering zero liability services and demanding only minimal substantiation for a consumers’ dispute; she further stressed the importance for credit card issuers, merchants and consumers to collaborate against friendly fraud and reduce trickle-down costs for everyone involved.
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