Associations: Preventing Credit Card Fraud Lesson #3 — Chargebacks

Authors: Julie Broadway, President & CEO, American Horse Council & American Horse Council Foundation; Julie Duncan, Association Industry Practice Leader, U.S. Transactions Corp.

In this article, part 3 in a series of articles on credit card fraud, we will examine the different types of chargeback fraud, the increased risk for chargebacks during COVID-19, and what you can do to insulate your Association against additional unnecessary losses.

Friendly Fraud and Chargeback Prevention

What is friendly fraud?

According to Chargebacks911, “Friendly fraud occurs when a customer files a chargeback instead of trying to first obtain a refund from the merchant. Authorized cardholders dispute legitimate charges to their credit cards, pushing the bank to force a refund under the pretense that the merchant made an error.”[1]

Often, well-intentioned members may accidentally commit friendly fraud because they either do not recognize your merchant name or are frustrated by a long delay surrounding a refund.

There is a difference between chargeback fraud (malicious) and friendly fraud (an honest mistake); however,  the difference does not matter as it impacts your bottom line the same. Both types of fraud involve filing a chargeback unnecessarily, and both have the same end result on your bottom line. Whether through ignorance or intent, receiving a refund while retaining the services purchased amounts to fraud.

The identity of the fraudster is what distinguishes malicious fraud from friendly. Malicious fraud is a form of identity theft through committed by utilizing a credit card number stolen from the authorized user.

Additional losses associated with chargebacks are as follows:

  • Chargeback fees assessed by the processor
  • Transaction processing fees
  • Hours required to dispute the chargeback charges.

How is COVID-19 Leading to a Spike in Chargebacks?

Associations are facing decreased revenue from events, and in some instances, waning membership bases. Event cancellations and postponements are leading members to contact Associations in large numbers for refunds, resulting in long hold times, frustrated members, and the potential for higher chargeback rates.

Members may often forgo contacting you even under the best of circumstances, instead going directly to the bank to file chargebacks due to delayed responses or cancelled items (friendly fraud). The added pressures resulting from COVID will only amplify this problem.

Chargebacks mean lost revenue, additional fees, and poor member satisfaction. In extreme situations, you could face possible loss of your card processing privileges altogether.

Chargeback management is a tricky process, with the burden of proof being on you, the Association (merchant). And, with a delay in chargeback reporting due to the timeframe window for chargebacks being long (this is controlled by the card issuing bank), this situation may potentially go on for months.

How Can I Reduce or Prevent Chargebacks?

Implementing a strategy for avoiding, reducing, and disputing chargebacks can help you recover lost revenue and reduce future chargebacks, making a chargeback prevention strategy a solid policy that will pay off long after things return to normal.


What are some tips that will help mitigate the risk and recover revenue from Chargebacks?

Implement FRAUD Prevention Measures

Chargebacks are tied to one of three sources: criminal fraud, friendly fraud, and merchant error. Criminal fraud calls for a dynamic strategy. There are multiple fraud detection tools you can employ, including Address Verification Service (AVS), CVV verification, 3-D Secure, Captcha, and more. See our additional articles on how to prevent fraud at your Association


Create a relationship with members so that they contact you before calling the bank. Make your customer service information easy to find. You should include your phone number and email address to contact for refunds. Additionally, make sure information regarding your Association name and contact information is visible on your credit charge receipts (known as your descriptor).

MAKE refunds/cancellations EASY

If the customer/member asks to discontinue a service or refund a purchase, you should grant the refund or cancelation quickly. Make the process simple. Also, be sure to inform the customer once you make the cancelation or issue credit.  It is very important to let your Member/Customer know that the refund can take up to 7 days to appear as a refund on their credit card billing statement.

Implement BEST PRACTICEs Policies

Follow the rules and regulations set forth by your merchant service provider for certain key best practices. For example, you make sure sales receipts are legible, settle batches promptly, and do not attempt multiple authorizations after receiving a decline. Keep a well-organized paper trail for every transaction. Stay current with your PCI Compliance Self-Assessment Questionnaire (SAQ).

Notify Customers Before Charging a Recurring Payment

If you bill your customer via recurring payments, be sure to notify them, especially if the payment occurs quarterly or annually. Notifying them that a payment is about to be processed will alert them to an upcoming charge and from whom it is coming.


If you are selling merchandise, let the member know of a delay. Also, if you discontinue an item, notify the customer immediately.

With vigilance and communication, your Association can put a strategy in place to reduce or eliminate chargebacks during this tumultuous time. If you would like more information about how U.S. Transactions Corporation helps Associations recover revenue and make informed decisions, please contact us directly at



1 Charchbacks911. (2019, January 2) Friendly Fraud.

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