Home > Awareness, Cybercrime, Privacy, Scams, Social Media > Charge-back scam

Charge-back scam

This blog aims to provide awareness in regards to new types of scams. This post is part of s series that provides information and examples of Internet-related scams. Today, here it is another post which is part of an awareness campaign launched by E-Crime Expert.

How it works:

Charge-back is when someone makes a purchase with their credit card and they receive the “charge” or cost of the product back from the bank.

In the USA, any American Express card owner gets a three-chargeback option each year. Therefore, someone could cancel a payment in order to get a product for free, for example. Why? The bank will put the money back in the person’s account for the reason that buyer claims the product did not conform to the description.

Paypal chargeback scam has two modus operandi (modes of operation):

  • When the scam type involves products – and please note that Paypal only covers where a material product is involved –which results in much fewer scams with material products because the sellers can always prove that they shipped the merchandise with a receipt and also by the pick-up signature from the other end, and might be able to provide pictures of the product.
  • But still, the danger comes indirectly from huge financial institutions would do anything to keep their clients in today’s dry times. How? Because some people abuse this system and deliberately buy a product knowing that they will later charge-back the money they paid for it.

To watch a video of someone’s testimonial about it and how he lost his product and was charged the same amount of money he should have received, click here: PayPal Chargeback Scams.

The other method, which is much more successful from the scammers point of view, has a success rate of over 99 % (based on the Internet Crime Complaint Centre statistics), and involves being a “customer” for services such as: website design or selling a domain name, etc. PayPal’s policy is that they do not offer support regarding disputes or disagreements when services involved (Check PayPal website terms and conditions). How it works: the “client” fills a formal complaint claiming that the website design is not how it was agreed, or the domain name is not as was agreed either. Since these are not material objects no conformity could be verified regarding the initial agreement between the buyer and seller. the buyer always wins and gets the money back from the seller, based on this non-conformity matter. When you have a written (off-line) contract you have there samples of the product, website screenshots, prints, design proofs, where the buyer expressly gives his agreement by signing them and agreeing to the website design, domain name characteristics, etc. But with these types of online transactions in most cases people don’t take these steps anymore and the dispute results over an intangible object, and a legally unofficial agreement.

How you could prevent this scam?

  • A service provider could send samples or a written agreement (contract) to the buyer asking him to print the documents, sign them to indicate acceptance and then send them back.
  • The service provider could use different payment methods that do not have this charge-back policy as Paypal does, or use another online payment method which better protects both seller and buyer  such as: Escrow
  • The seller can check the buyer’s history of transactions (as on eBay) and if he has a good reputation and a significant amount of transactions completed, he might be more reliable than a brand new user with no feedback or transactions record. But still this is not enough: always ask for the phone number, address of the company and proof of legitimacy. If they refuse, there are significant chances that a scam is involved and you are the target.

Any questions can be submitted to:
dan@e-crimeexpert.com

Additional information can be found at: www.e-crimeexppert.com

Did this scam ever happen to you? If so, what did you do? Do you know other new types of scams that you would like to share?

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  1. Samantha Brooks
    February 11, 2012 at 02:29

    Hi,
    I was recently scammed. I sold a very expensive item to a lady in the US, she agreed to pay in instalments. The last two instalments were sent together, along with requested shipping charges, we had agreed on.
    When she received the item, she sent me lot of emails of how happy she was etc, all in all, about 8 emails.
    All of a sudden she made a complaint to paypal about the shipping charges, because they were held in customs and they didn’t reach her overnight. Paypal dismissed this, so now she went to her bank and did a chargeback, not just for the extra she thinks she paid in shipping, which she didn’t, but for 2.500US, the last payments made. Up until this date, she had been mailing me, asking me to bid on other items in the UK for her, telling me about her family and everything. Sending me hugs and kisses.
    I now have a negative balance, I can’t use e-bay or paypal..
    I have sent in the invoice for shipping to paypal, plus about 30 emails received form buyer, all positive, apart from the shipping query.
    It seems to me, she has already won, and I feel that she has robbed me, Laughing all the way to the bank!
    Paypal say I have a good case, because all the evidence is on my side, I thought that under the sales of goods act, buyers don’t have these rights to rip off private sellers. Seems to me paypal is sailing too close to the law, with buyers calling all of the shots.

    Sam.

  2. Dan Manolescu
    February 13, 2012 at 18:49

    Hi Sam,

    Thank you for sharing your unfortunate bad experience with us, which definitely will help other people stay protected, which is exactly the purpose of this Blog. As I can see the situation from your description, PayPal should be liable for the financial aspect of this transaction. PayPal should protect both buyer and seller. How it works: when the buyer purchases something, then the money is held by PayPal until the buyer confirms the receiving of the goods. Also, the seller does not ship the goods until PayPal confirms the receiving of the funds. Because you both (seller and buyer) pay a transaction fees for each transaction, then PayPal is to be considered to offer you a financial service. In your case, they should not just simply say “you have a good cause” but actively get involved in settling the matter. Also, you should inquire your bank why they released the funds back to the “buyer”. I know what charge back (scam) is about, but your bank should have checked with you before releasing the funds back to the seller based on an alleged product/shipping dissatisfaction. If you still have those emails that confirm the buyer was satisfied with your products, then you have a case. But now it is up to you how far you wanna go. I will try help you as much as I can from overseas if you decide taking on this fight.

    Dan.

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  1. September 29, 2011 at 05:52
  2. September 29, 2011 at 11:52
  3. September 29, 2011 at 21:37
  4. September 30, 2011 at 09:27

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