Full Podcast Transcript
NASIR: All right. Welcome to our business podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: Very good. It’s our Friday episode. You know, honestly, I can’t get over that last Wednesday episode. I’m still thinking about it.
MATT: It’s one of the better guests we’ve have.
NASIR: It was real. It was pretty raw. No expert here; it was just someone that co-owns a company that provides a service that was sued by Yelp and was defending them. So, if you guys haven’t checked it out yet, one episode before – E165 – definitely, definitely something you don’t want to miss.
MATT: And they’re probably not listening to this episode today because, as you know, the Thursday and Friday of the NCAA tournament, it’s like the biggest nonproduction workwise. There was something like 9 billion. I saw some number.
NASIR: I think the 9 billion is the number of people that watch it that day.
MATT: No. Uh, okay. “Estimated 40 million fill out brackets, wager approximately $9 billion.”
NASIR: What a waste of money.
MATT: Pretty much all that illegally.
NASIR: So, what was interesting, I was on Reddit and trolling through there and making fun of people on my comments and stuff like that – no, not really.
MATT: Typical for you.
NASIR: So, there was one person, I think, in the finance section or personal finance section that posted something about how their PlayStation network gamer tag was – I don’t know – there was all these charges on it and I can’t remember the exact circumstances but, bottom-line is, somehow, PlayStation was saying, “Either you pay this amount or we’re going to ban you for life,” or whatever. And then, someone else responded to that and says, “Okay. I see your PlayStation problem and I raise my case where I got scammed with a PayPal chargeback and forced to repay $1,414 or be banned forever.” Of course, this post got picked up and on the front page and then Consumers.com covered it and different things like that. So, I thought it was pretty interesting that we should cover it.
MATT: Basically, this is how I understand the whole fraudulent transaction here, whatever you want to call it – a scheme, if you will.
NASIR: They call it “friendly fraud.”
MATT: Yeah, I saw that, too. I thought that was stupid. Friendly fraud…
NASIR: It’s so odd, yeah.
MATT: So, let’s see, what’s something I want to buy? Let’s see. I’m going to buy a TV.
MATT: So, I’ll order a nice expensive TV.
NASIR: Flat screen?
NASIR: Flat screen or one of those tubes?
MATT: Well, I’m going to go big because this is what I’m going to do. It’s order this really nice curved big TV that’s thousands of dollars. So, I order it and then I tell my bank, “Oh, I didn’t order this.”
NASIR: But that’s a lie.
MATT: Yeah. Well, it’s friendly. It’s a friendly lie.
NASIR: Oh, okay.
MATT: Get the charges reversed after this identity theft claim so I get my money back, and guess what, I still have the TV too and the person that sold it to me, I guess they’re the ones that are out of luck because they don’t have a TV or the money.
NASIR: But then, who has to pay for all that? Someone has to pay for it.
MATT: Whoever sold it to me. I don’t care. I’m watching my TV. I’ve already forgotten about it.
NASIR: You’re watching the NCAA tournament and betting all your money that you still have.
MATT: Yeah. Yeah, don’t get me wrong; I lost all the money that I got from this friendly fraudulent transaction. But, still, at the end of the day, I feel pretty good about it.
NASIR: No, and anyone who has been charging credit cards for a long enough time, you know, we have credit cards. I don’t think I’ve had one chargeback because, you know, usually the people that you’re working with, you know them so you’re not going to have that kind of fraud like we have, like, engagement letter and things like that. But, for those vendors or those merchants that are actually selling products online or even digital services are huge targets, you’re not meeting the customer and so it’s very difficult for you to really verify the person’s identity or anything like that. So, these consumers can easily justify – not justify – but be able to defend themselves saying, “Oh, someone stole my credit card.” They could have just went online and bought a product and had it shipped to them without any kind of recourse, and I’m sitting here in my home with my credit card in hand and I didn’t do that. So, it’s kind of an easy scheme to get away with. But the problem is how, as a business, do you defend against it?
MATT: Yeah. As a business owner, there’s really, I think, three different things that can happen in terms of this and we talked about, obviously, the most dubious way. I can’t get over the “friendly fraud” label of it but, you know, basically just getting straight up scammed and that would be the worst. Kind of below that would be a customer who really did have or someone that really did have identity theft occur with them. And so, they’re going to get a chargeback that way with the business. And then, the third – which is by far the most reasonable – is just someone’s not happy with the good or service that you sell as a business and, you know, they chargeback that way and hopefully they would – I mean, I’m not going to say they are – they probably won’t contact you but, you know, hopefully they would and you can resolve that outside of this whole chargeback issue. But it’s a serious thing for businesses, especially for small businesses – you probably know more about this than I do but – in terms, like, the credit card processing, there’s limits on how much chargebacks – like, the amount or number of chargebacks you can have.
NASIR: Oh, yeah. If you have enough chargebacks, even one or two, depending upon how much volume you do and stuff like that, but those merchant processers will drop you overnight because they don’t want to get in trouble from VISA and MasterCard because they have agreements, too. And it also affects your business credit, too. So, if you’re worried about maintaining your own business credit, if you want to get a loan in the future, these kinds of things, because, if you think about it, there are chargebacks that are legitimate, right? Like Matt said. And so, chargebacks can be a bad sign. And, also, even if they’re not legitimate, then it also shows that, somehow, you’re not taking enough action on your part to prevent the fraud, and that’s kind of dubious, too. But there are ways to prevent it – I mean, if you think about it – in the sense that the best way that is not practical but a way to prevent fraud is to make sure that you see a driver’s license, see the physical card, get a signature and all these things. But then, how do you do that online? You know, now there’s a three-digit number on the back of the card – further proof that the person that’s purchasing has the card in their hand because that number is different for each card. But, even then, that’s not enough to prevent it from the whole fraud system. So, the real answer, to me, is that this is the cost of doing business and, if you’re in this same position and you’re forced to repay – you know, $1,400, by the way, from what I’ve seen with chargebacks is not that big of a deal; when you’re dealing with high volume, that’s like a common thing. But, for this particular person, he/she posted it on Reddit, went to the front page, and guess what happened? PayPal reimbursed the amount and took care of the account so it became a non-issue. Of course, I’m pretty sure that only came about because of the Reddit popularity but, you know.
MATT: Yeah, I don’t think that’s going to be a trend. It’s probably a one-time thing – at least for this. But, yeah, that’s what I was going to ask because, you know, outside of working out the people that want to do returns of the good or just weren’t happy with the service, you know, what can a business do to prevent this from happening? You know, you can have as much precaution as you want but, if identity theft is going to occur and friendly fraud, as you will, you know, it’s going to occur too. And, like you were mentioning, you can definitely take a few more steps in kind of preventing this from happening. But, to me, I guess it’s pretty much impossible to have 100 percent protection on this. It’s just, like you said, the cost of doing business. But it did remind me – and I forget where I even saw this – someone posted a picture, it was like, “Oh, I got my brand new credit card!” and took a picture of it and put it up on, like, Facebook or whatever – just the full card – and there was a bunch of comments and the person wrote back like, “Why is everyone asking me what the three-digit number on the back is? It’s blah blah blah,” and they wrote it on there. You can pretty much just cut that card in half and call your credit card company right now because…
NASIR: I guess that’s the quick way to learn about credit card security and preventing fraud.
NASIR: You know, if you look at the Reddit comments on this particular post, you can get some – I don’t want to say “good” or “bad advice – I’m just going to say “advice” on what you can do in similar situations, especially dealing with PayPal directly is pretty helpful. But then, there’s a post, you know, that says, “You are going about it the wrong way. You have recourse through the courts. You can take the scammer to small claims for being out the $1,400 and prove it is there because of fraud.” You know, it sounds nice and that could be an option but it’s not as easy as that, you know? It would be small claims court and then you have to make sure you know who the scammer actually is which is an issue and you have to be able to prove it and you have to be able to file a case – usually in the residence of the defendant so that may be out of state if it’s an electronic transaction. And then, even if you do get a judgment, you actually have to collect, and that’s all for $1,400, right? At the end, you’re not going to get that money back even if you are going to get a judgment for $1,400 and that’s kind of the concept there.
MATT: Yeah, it’s easier said than done with that. That’s the thing we say all the time. Even when you have a slam dunk case of clear fraud, there’s still many walls you have to break through just to get that money at the end of the day.
NASIR: Also, you should know that PayPal, like others, are third-party services that you’re processing these credits cards through and there’s a lot of people that say online, “This is the exact reason why they don’t use PayPal.” Someone shared another story where they sold a couple of hundred dollar gamer code or something like that and, two days later, their PayPal account went -$200 because the person disputed it and, even after they contact PayPal, providing evidence that the person actually acknowledge the receipt of the code and things like that, PayPal ended up siding with that customer and that person was out a couple of hundred dollars. I’m not sure what happened. Obviously, that’s just one particular case. But you do have choices on who you use and how those disputes are handled as well, and that’s all done by contract.
MATT: So, I got my TV, you know. At the end of the day, I came out ahead.
NASIR: Very good. I think everyone likes you more now.
MATT: I still don’t understand, like, the friendly fraud makes no sense.
NASIR: I think the euphemism is such that, well, from a consumer’s perspective or the fraudster perspective, oh, you know, who does it hurt, you know? It’s these big guys that have a bunch of money anyway so what’s the big deal?
NASIR: We should do some friendly fraud on them. They just have to start accepting credit cards.
MATT: Yeah, I didn’t know if this was like a Sour Patch Kids situation where it’s like first they’re sour then they’re sweet. First, they’re fraud, but then there’s friendly fraud.
NASIR: In fact, yeah, they should just say “Sour Patch Fraud.”
MATT: Sour Patch Fraud, yeah. It’s good. You just coined a new phrase there.
NASIR: Ah, that’s what I do! All right. Well, thank you for joining us, everyone, and don’t forget to leave some positive reviews on iTunes for us. That’d be great.
MATT: Yep. And, as always, keep it sound and keep it smart.