Fraud Basics

The not-so-friendly fight against ‘friendly fraud’

Whether you call it “friendly fraud” or a chargeback, refund fraud and abuse is on the rise and costing retailers billions. The author discusses what this fraud entails, what’s behind its growth and why this decidedly unfriendly scheme is so frustrating to fight.

In November 2023, the U.S. Department of Justice (DOJ) charged a group of cyber criminals with conspiracy to commit wire fraud for orchestrating an international scheme that bilked Target, Amazon, Walmart and Home Depot out of millions of dollars. The cyberfraud gang, known as the Artemis Group, coordinated the scheme with fraudsters around the world to purchase products from the retailers’ websites and then deceive them into processing refunds. Those involved then kept the items that’d been refunded. (See “Ten Members of International Cyber Fraud Ring Indicted for ‘Refund Fraud’ Scheme Targeting Online Retailers,” DOJ, Nov. 9, 2023.)

In another case, owners of a family-owned coffee shop in Quebec, Canada, lost $10,000 to customers who ordered two expensive espresso machines and then claimed they didn’t purchase the machines. The banks sided with the customers, even though the coffee shop owners had copies of their email exchanges. In the end, the owners lost both the money and the machines. (See “Quebec family-run business issues warning after alleged payment dispute scam,” by Dan Spector, Global News, July 21, 2023.)

These schemes are often referred to as “friendly fraud” because customers’ disputed charges appear legitimate, but they’ve become a costly and decidedly unfriendly thorn in the side of merchants and financial institutions. According to the National Retail Federation, retailers lose $25 billion a year to them. (See “Navigating friendly fraud a top priority for retailers,”, March 7, 2024.) Also known as chargeback or first-party fraud, they surged during the COVID-19 era and continue to proliferate with few solutions. Here’s a breakdown of these not-so-friendly frauds, the ways consumers exploit them and what it means for businesses to combat them. 

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