Having to sue customers who filed fraudulent chargebacks

Latest post Fri, Oct 18 2013 12:34 AM by emelexista86. 24 replies.
  • Thu, Dec 30 2010 12:32 PM

    • smitty90
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    Having to sue customers who filed fraudulent chargebacks

    I own a internet based business where I sell custom made home decor items to people all over the country. I am based in Georgia. I have had on several ocassions customers who ordered thousands of dollars of custom items only to file a chargeback, ultimately win the chargeback and refuse to return the merchandise.

    It's a nice little scam to pull if you know how the system works and want free stuff. Even though I have signed orders from these people agreeing to my websites terms, conditions and policies, as well as signed proof of delivery docs, the credit card company always in the end finds in favor of the card holder and tells you to just sue the cardholder.

    I was told be a legal professional that because the transaction occurred in Georgia, I could have them served in their state and than file suit in my city in small claims court. Most likely they would not incur the expense of traveling here and I would win a default judgement.

    I was surprised to hear that I could sue them in my state and was assured by the clerk I spoke with that as long as I followed the proper service procedures, that I definetley could do just that.

    My question is how much above the amount of the actual order can I include in my suit? One person caused me to lose my merchant account which set me back for months while I tried to obtain a new one. Can I sue for the merchandise, interest, damages and anything else? Should I sue in small claims or civil court and what exactly should I sue for? Breach of contract, fraud, theft???

    Thanks in advance for any insight.

  • Thu, Dec 30 2010 12:34 PM In reply to

    • LynnM
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    Re: Having to sue customers who filed fraudulent chargebacks

    I would double check with a local attorney. Small Claims court staff are not lawyers. Are you sure your damages even fall under the small claims cap?

  • Thu, Dec 30 2010 12:43 PM In reply to

    • smitty90
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    • GA
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    Re: Having to sue customers who filed fraudulent chargebacks

    Well, I think the small claims amount cap here is $15K. The order was for $4000 but with actual damages, I would be o.k. with $15K at this point.

  • Thu, Dec 30 2010 12:50 PM In reply to

    • LynnM
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    Re: Having to sue customers who filed fraudulent chargebacks

    Don't assume you can collect any "damages" - they have to be forseeable and the merchant account thing is a little too far to meet that criteria.

  • Thu, Dec 30 2010 12:50 PM In reply to

    • LG81
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    Re: Having to sue customers who filed fraudulent chargebacks

    smitty90:

    Well, I think the small claims amount cap here is $15K. The order was for $4000 but with actual damages, I would be o.k. with $15K at this point.

    I don't think you would stand a shot at $15k against a customer who won a charge-back of $4,000.  Even if this was the one charge-back that put you over the top and caused you to lose your merchant account, it wasn't the sole one.  You would have had to lose several chargebacks in order to lose you account.

    If you had POD, etc., what was the explanation for your loss of the charges?  Was it due to merchandise not as described?

  • Thu, Dec 30 2010 12:59 PM In reply to

    Re: Having to sue customers who filed fraudulent chargebacks

    smitty90:

    I was told be a legal professional that because the transaction occurred in Georgia, I could have them served in their state and than file suit in my city in small claims court. Most likely they would not incur the expense of traveling here and I would win a default judgement.

    I was surprised to hear that I could sue them in my state and was assured by the clerk I spoke with that as long as I followed the proper service procedures, that I definetley could do just that.

    There's nothing "definitely" about that.

    It's a great big "maybe" and depends on whether or not your court has "personal jurisdiction" over a defendant in another state.

    You can read up on "personal jurisdiction" in the following search result:

    http://www.google.com/search?hl=en&source=hp&q=georgia+personal+jurisdiction+law&aq=1v&aqi=g1g-v1&aql=&oq=georgia+personal+ju&gs_rfai=

    smitty90:
    My question is how much above the amount of the actual order can I include in my suit?

    You sue for the amount of the order.

    Your court costs and post judgment interest will be added if you win a judgment.

    If your purchase contract specifies pre-judgment interest you can sue for it. Otherwise not.

    smitty90:
    One person caused me to lose my merchant account which set me back for months while I tried to obtain a new one

    Is that really what happened? Or did you just not have enough money to cover the chargeback when it happened? You can certainly sue for consequential damages but it's a lot harder to prove it.

    smitty90:
    Can I sue for the merchandise, interest, damages and anything else?

    Asked and answered.

    smitty90:
    Should I sue in small claims or civil court

    Depends.

    If the amount in question is within the small claims limit of the applicable state then it's a lot easier and cheaper to use small claims court.

    smitty90:
    what exactly should I sue for? Breach of contract, fraud, theft???

    Breach of contract. Because that's the easiest to prove and all you need to win a judgment.

    Civil fraud and theft and much more complicated to prove because you have to prove intent. Count on spending thousands on a lawyer if you want to go that route.

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • Thu, Dec 30 2010 1:26 PM In reply to

    • smitty90
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    Re: Having to sue customers who filed fraudulent chargebacks

    Dear LG81,

    No, not really. All is takes is on chargeback and the processor can cancel you at anytime. She actually filed multiple chargebacks and I won each one. Finally it went to arbitration under the guidelines of Visa/MasterCard and when that happens, no matter what the customer is always sided with an the merchant gets screwed. So the processor regarded her mulitple chargebacks as just that, ignoring the fact that they were from the same person regarding the same issue.  Her reason for filing the chargeback changed with each one she filed and I kept winning each one initially. I think one was "merchandise not as described". What is she suppose to say? I really like them but don't want to pay for them and am doing this so I can end up with my money back and keep the curtains? 

    I'm a small business that relies heavily on cash flow and this loss of money for materials that were ordered just for her and cut to her exact specifications that she signed off on was a major hit for me. Losing my merchant account at the time caused major repurcussions that have cost me significantly more.

    She is a business owner who knows how the system works and she worked it. I don't want to let her get away with this.

  • Thu, Dec 30 2010 1:29 PM In reply to

    • smitty90
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    • GA
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    Re: Having to sue customers who filed fraudulent chargebacks

    Adjuster Jack,

    Thanks for the info. Breach of contract is what I was thinking. I did have enough to cover the chargeback which is how they were able to dip into my bank account and take it. That did create problems with me being able to fulfill other orders (cashflow) and the processor put me on a very high reserve further limiting my ability to operate my business.

  • Thu, Dec 30 2010 3:00 PM In reply to

    Re: Having to sue customers who filed fraudulent chargebacks

    Did just this one person do this to you?

    Or does it happen frequently with lots of customers.

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • Thu, Dec 30 2010 3:49 PM In reply to

    • smitty90
      Consumer
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    • Joined on Mon, Dec 13 2010
    • GA
    • Posts 13

    Re: Having to sue customers who filed fraudulent chargebacks

    Fortunately, this is not something that happens often. This one person was responsible for our account being closed in the end. I have several other customers who simply changed their minds and wanted to cancel even though they signed an order agreement stating that there are no cancellations or refunds on customer items. They also ketp their merchandise, refusing to send it back. I would like to sue all of them for every dime I can and am gathering up as much information as I can at this point, thanks.

  • Fri, Dec 31 2010 12:35 AM In reply to

    • LG81
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    Re: Having to sue customers who filed fraudulent chargebacks

    smitty90:
    All is takes is on chargeback and the processor can cancel you at anytime. She actually filed multiple chargebacks and I won each one.

    Are you trying to say it only takes one chargeback?  I haven't seen that, plus I doubt that's the case given you won multiple times against this one customer.

    smitty90:
    Finally it went to arbitration under the guidelines of Visa/MasterCard and when that happens, no matter what the customer is always sided with an the merchant gets screwed.

    Respectfully, I disagree.  While in the current climate, the burde of proof tends to be on the merchant, if the merchant does everything right, things most often work out.  One key is to meet with your merchant services rep and get all of the info you can on preventing/winning chargebacks. Since you had to get a new provider, build that relationship sooner rather than later.

    You indicated you had a repeat "chargebacker."  Hindsight is always 20/20, but what I would have done after the first two is require an upfront wire.  Customers can try to get those reversed as well, but merchants have much swifter response to win.  Many customers -- shady or not -- will be reticent to use wires, but when you're really concerned about a customer ask for it.  If the customer refuses, then the answer may just indicate s/he's not someone you want to do business with.

  • Fri, Dec 31 2010 11:24 AM In reply to

    • smitty90
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    • GA
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    Re: Having to sue customers who filed fraudulent chargebacks

    I don't think you understand how merchant processor operate. How would I be able to get the customer to wire funds in which she was attempting to get out of having to pay? Also, have you ever had to reverse a wire transfer? I attempted to just once and it is immpossible due to banking regulations. Would you pay someone for merchandise you are purchasing via the internet with a wire transfer? I see you are a consumer, are you a merchant? You don't sound like you know how any of this works but thanks any way. You are absolutely wrong about "if the merchant does eveything right, things most often work out". That is absolutely not the case. Just google "winning a chargeback" and you'll see thousands upon thousands of complaints from merchants who have had the very same thing happen to them and in the end lost. They did everything right to the letter to no avail.

  • Fri, Dec 31 2010 11:53 AM In reply to

    • LG81
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    Re: Having to sue customers who filed fraudulent chargebacks

    smitty90:
    I don't think you understand how merchant processor operate

    Actually, I do.  Generally, a supervisor handles charge-backs, Paypal, disputes, etc.; however, when one gets really sticky, it's raised to me and I get involved.  I made a concerted effort to develop a good relationship with our merchant services rep; when she doesn't know an answer, she'll often bring in a person from an appropriate department to help out.

    smitty90:
    How would I be able to get the customer to wire funds in which she was attempting to get out of having to pay?

    I'm suggesting up-front wires for "problem" customers like this one for future purchases.  Obviously, someone is not going to wire funds for a particular charge already disputed.

    smitty90:
    Also, have you ever had to reverse a wire transfer? I attempted to just once and it is immpossible due to banking regulations

    Yes, I have had to reverse a wire transfer.  It was difficult but not impossible because our reversal was completely legit.  And this is my point exactly, if you want to continue doing business with your "problem" customer, require wires.  Reversal is way more difficult than filing a charge-back.  

    smitty90:
    I see you are a consumer, are you a merchant? You don't sound like you know how any of this works but thanks any way. You are absolutely wrong about "if the merchant does eveything right, things most often work out".

    Yes - I am the  CFO for a retail business with more than 60% of its sales over the internet and another 20% via calls with sales persons.  We have a very high win rate on charge-backs.  This wasn't always the case.  When I came on board, I was alarmed by the $$ of lost charge-backs so it was an item I tackled right away.  I became educated on all of the "rules" with our merchant services provider as well as Paypal.  I then ensured our Orders Department who actually processes all of the orders was fully trained on all of the particulars.  Our win rate on chargebacks is currently 94%.

    Now, there are many things I'm NOT fond of.  For example on Visa/MC purchases, customers can dispute up to one year after the transaction.   In my opinion, that is nuts, but there is nothing we can do about it.

     

  • Fri, Jan 7 2011 9:03 AM In reply to

    • TCarter15
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    • Posts 420

    Re: Having to sue customers who filed fraudulent chargebacks

    Are you incorporated? If you are, I believe GA requires you to hire an atty to sue so you may get a lot of your questions answered by the atty.

    If not, I agree with others here. Personal jurisdiction is questionable. In addition, if you're dealing with seasoned theives, there is no guarantee that the address you sent the merchandise is a servable address. It might be a P.O. Box, even if there is no indication of that.

    While chargebacks can be challenging, if you're doing business over the internet, you may need to do some additional homework. There is a whole area of consultancy, local and national dealing with chargebacks. Processors are actually business friendly, but you must know the rules and there are a lot of rules.

    Final thought, maybe you can add a local jurisdiction clause to your contracts to overcome this hurdle in the future. Good Luck.

  • Wed, Apr 13 2011 3:53 PM In reply to

    • mibtp
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    • CA
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    Re: Having to sue customers who filed fraudulent chargebacks

    I'm having same issue.  Someone bought an item online which was a charity fundraiser.  We mailed it, had signature confirmation. Have all the rules regarding no refunds posted.  They did a chargeback request and won despite the fact we all the proof in the world!  They keep item and tax deduction!

    I have done some research and have discovered their is a VISA/Mastercard Arbitration process you can get started through the buyers bank.  But unfortunately, I use Google Checkout and have no idea who the bank is?  Have no idea if they will give me any information.

    For now, our charity google merchant account is in the hole -$1100.00 from this dispute.

    Hopefully I can do the Arbitration before I end up taking them to court.  Of course they are out of state.

    Does anyone know if Google has to provide the seller with the buyer card number and bank issuer?

     

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