It is well known by everyone, including consumers, that consumers bear no responsibility for protecting their information from others. If their information is used, and they decide that they no longer want it to be used, then they merely have to dial up their bank and say, “I did not authorize this transaction.” Very simple indeed.
The consumer gets their money back, the consumers bank is not out anything other than the time it took to service this customer, the merchants bank gets fee revenue from the return and the merchant not only pays for the sale transaction but the return and any loss incurred through merchandise or services rendered based on that transaction.
That return transaction can further line some pockets if it results in the merchant having more returns then they are allowed by the regulations imposed from the associations that will benefit most from the fines imposed.
I took the time recently to handle some customer service calls. I think this is something that every consumer facing banker, every regulator and every rule maker should have to do at least for one day every year. Perhaps then there would be fewer policies, rules and regulations made that don’t reflect actual conditions in the real world.
Here are a few of my experiences:
1) A woman called in because there were charges on her bank account. The purchase was in her name, contained her address and her account information.
Clearly, the person who used her information had all the data needed to successfully use her account for purchases online. The one piece of data that was not hers was the email address and this email address was a male’s name spelled out completely.
The woman knows this man: He is her boyfriend’s brother. The password on the account that was set up was also a name and it was the name of the fraudsters’ girlfriend’s daughter!
2) A man called in because he had charges on his account and he couldn’t find the phone number for the merchant on their website and he emailed them but had not yet heard back. He couldn’t self cancel because he did not have enough information about the transaction to cancel it. He went immediately to his bank because it seemed that the merchant was unreachable.
When I made contact with him, he had just left his bank. For fun, I asked him for the information to find him in the system. As we were talking, he let it slip that his bank told him the individual name that came through on the transaction. He informed me that it was his troubled stepson. I asked him if this stepson’s name was on the bank account and he said that it was not. I replied, “Then don’t you think your bank should have rejected the transaction?” He agreed wholeheartedly that if they had reacted in that manner, this situation would not have happened. The man’s bank, even though they knew that the fraudster was the stepson of this man, returned the transaction as unauthorized because the signer on the bank account did not authorize the transaction.
3) An irate man called in because his information had been used fraudulently and he wanted his money back in his account in 24 hours. Looking up his information I discovered that the purchase was made using his name and his address. Further, I asked him about the email address and he confirmed that it belonged to him!
Imagine, a person steals your information right down to your email address knowing that you will get the confirmation containing the userid and password to access your membership site.
This man had gone online and self cancelled as he had all the information he needed to do that cancellation. He had also attended his bank telling them that he did not authorize this transaction and you can be sure that they will return the transaction as unauthorized.
4) A man called in and told me that a “friend” who was on hard times had been staying at his house and obviously had stolen his bank account information. He just wanted his memberships canceled and the billing to stop. When he was asked if he wanted to get his information added to the negative database so that it could not be used in the future on this site, he said no. When it was reclarified that placing the account in the database would clearly help him avoid this situation in the future, the answer was still no. A suspicion arousing scenario to-be-sure, but at least he wasn’t asking for refunds or returning the transaction through his bank; he just wanted to cancel the service.
The examples above are not outliers, they are the norm, and we have the rulemakers and society in general to thank for creating this system wherein the customer is always right even when they are obviously at fault and lying through their teeth.
Lets look what would happen by payment type for each one of these examples:
1) ACH. The consumer can return the transaction as unauthorized because she did not authorize it. The consumer receives 60-90 days worth of transactions back into her account but is out the money from earlier transactions that shehad not noticed on the account. The merchant is net positive in this situation as the billings had been going on for over a year.
Cash. The consumer loses whatever was taken from her and used. She learns an important lesson in keeping her money somewhere safe.
Check. The consumer gets six months worth of transactions back because the signature was forged. The fraudster has committed check fraud and could be reported to the police and, if they are so inclined, he could be further investigated for check fraud.
Credit Card. The information would have passed the real time validation. The consumer would have been able to issue a Chargeback and the consumer would have received the same amount of money back in their account.
2) ACH. The consumer can return the transaction as unauthorized because they did not authorize the transaction. The consumer, after filling out the paperwork at the bank, receives only the transaction charged back into their account. The merchant receives an unauthorized return from the consumer’s bank, resulting in a fee and the loss of a sale.
Cash. The consumer loses whatever was taken from them and used. The consumer learns an important lesson in keeping their money somewhere safe.
Check. The consumer gets the transaction refunded because the signature was forged. The fraudster, has committed check Fraud and could be reported to the police, and if they are so inclined, he could be investigated for check fraud.
Credit Card. The information would not have passed the real time validation and the transaction would have been stopped. However, the fraudster likely would have just changed the name on the transaction to that of the actual cardholder and it would have gone through just fine. At that point the cardholder would call his bank, tell them he did not authorize the transaction and he would get his money returned, the merchant would incur a chargeback and the fees that are attendant with it.
3) ACH. The consumer can return the transaction as unauthorized because he states that he did not authorize the transaction. The consumer receives his transaction back into his account. The consumer just needs to sign the paperwork that states he did not authorize the transaction.
Cash. The consumer loses whatever he spent.
Check. The consumer would have to demonstrate that the signature was forged. This is not likely to happen so the consumer probably would not challenge the transactions. He may contact the merchant and state that he was unhappy with the service but he would not likely be claiming that fraud had occurred.
Credit Card. The information would have passed the real time validation. Similar to ACH, the consumer would have been able to issue a chargeback and the consumer would have received the same amount of money back in his account.
4) Regardless of the payment method, this consumer only dealt with the merchant and did not request any money back. The outcome is the same for all payment methods.
I was once told that people will behave in more irrational and more confrontational ways while in their cars than they ever would outside of their vehicles. It was related to the fact that the car affords you a sense of anonymity and security and therefore, when a driver is annoyed at another driver, they will swear, gesture and honk their horns with little concern or guilt because, as the traffic moves on, the two will likely not meet up again.
The impersonal nature of electronic payments is providing this same anonymity that allows consumers to declare foul play, hide behind their bank or card issuer and never have to state their case to the merchant that they are effectively defrauding and who has sufficient information about the transaction to see that it is consumer fraud. As long as the technology allows us to transact quickly and effortlessly anywhere in the world, the continued shield of anonymity and the rules and regulations favoring the consumer will only increase the number of reported cases of fraud that technically only became acts of fraud when the guilty consumers called their bank or card issuer.
And now you can easily imagine, along with me, that with every chargeback and unauthorized transaction that hits your merchant account, there is an erratic person in their car passing you on the right making a gesture at you with their middle finger. Oh yes, I do believe they are smiling.
Melody L is chief operating officer for L3 Payments.