According to a survey conducted by identity verification platform Socure, “friendly fraud” costs businesses a staggering $100 billion each year^[1]. Despite its name, this type of chargeback can be anything but friendly—it can hurt merchants financially, causing them to implement stricter verification policies or raise prices to compensate for these losses.

In extreme cases, friendly fraudsters might have to face legal repercussions, often unintentionally. Understanding what friendly fraud is and how it differs from other types of chargeback fraud can save you from unnecessary headaches and protect your finances.

In this article, we’ll cover everything you need to know about friendly fraud chargeback, its potential consequences, and what to do if you’ve unknowingly filed an illegitimate claim. We’ll also share practical tips to avoid being involved in friendly fraud.

What Is a Friendly Fraud Chargeback?

Friendly fraud is a case of “first-party fraud” where a customer disputes a legitimate transaction on their payment card and asks their bank to reverse the charges. If the dispute is approved, the bank initiates a chargeback and withdraws the amount from the merchant’s account to give the funds to the customer.

Some of the common dispute reasons that may lead to friendly fraud chargebacks include:

• Forgetting about a purchase you made
• Not recognizing the name of the merchant on the statement
• A child or another family member using your card without your knowledge (also known as ‘family’ or ‘household’ fraud)
• Misunderstanding a merchant’s refund or return policies

Friendly fraud cases are among the most predominant categories of chargebacks. The Q4 2021 Digital Trust & Safety Index report by Sift found that out of all customers who filed a dispute, 17% admitted to friendly fraud. On the merchant’s side, up to 75% of all completed chargebacks might stem from friendly fraud, which makes them a great concern for businesses^[2].

Friendly Fraud vs. Chargeback Fraud—Are They the Same?

The terms friendly fraud and chargeback fraud are often used interchangeably, but they’re not the same. Friendly fraud is a type of chargeback fraud, but what differentiates it from other types of chargeback fraud is the perpetrator’s lack of malicious intent. In cases of friendly fraud, the customer might unknowingly believe a charge is unauthorized and dispute it without trying to defraud a merchant.

On the other hand, true chargeback fraud happens when the cardholder has ill intent and wants to keep the goods as well as get a full refund from the false claim. Below are some examples of chargeback fraud:

• Claiming a legitimate transaction to be unauthorized to avoid having to pay for it
• Feeling ‘buyer’s remorse’ after impulse buying and claiming the product was damaged or never delivered
• Filing a dispute through the bank to get a refund without returning products or after missing the merchant's return deadline

How Does a Friendly Fraud Chargeback Work?

A friendly chargeback, just like any other chargeback, is one of the outcomes of a typical credit or debit card dispute process. Here’s how the process generally unfolds:

1. Initial transaction—You or someone you know makes a legitimate purchase and receives the product or service. This can be either an in-person or online transaction.
2. Dispute filing—You file a formal dispute by contacting your bank to report the charge, claiming it’s unauthorized or incorrect.
3. Provisional credit—The bank may issue you a temporary refund called ‘provisional credit’ while investigating the claim.
4. Investigation—Banks have 90 days to complete the investigation under the Fair Credit Billing Act^[3] (45 days for debit card disputes^[4]), during which they review the dispute and contact the merchant for evidence, such as proof of purchase or delivery. 
5. Outcome—If the bank sides with you, a chargeback is issued, and you’ll keep the provisional credit. However, if the merchant provides compelling evidence and the bank denies the chargeback, the temporary credit is withdrawn from your account.

Is a Friendly Fraud Chargeback Illegal? And What To Do if You’ve Unintentionally Filed One?

Since friendly fraud is classified as chargeback fraud, it’s technically illegal in most jurisdictions. However, prosecution might be rare because it’s difficult to prove criminal intent, as friendly fraud cases might be accidental.

You might face financial repercussions, though, especially in case of repeated chargebacks or high-value purchases. For example, the merchant may file a civil lawsuit against you at a small claims court to reimburse their losses^[5]. In serious cases, banks may even close your credit cards, impacting your credit score.

If you think you've accidentally filed a friendly fraud chargeback, you should take immediate steps to rectify the situation. The first thing to do is contact your bank and ask to withdraw the claim. They can cancel the dispute quickly if the chargeback hasn’t been processed.

If the bank has already concluded the dispute in your favor, consider reaching out to the merchant and offering to repay the disputed amount to keep them from taking legal action. However, it’s a good idea to notify your bank about this arrangement, as this prevents any confusion regarding duplicate payments and ensures all financial records are accurately updated.

4 Best Methods for Preventing Friendly Fraud Chargebacks

You can easily avoid friendly fraud with a little vigilance and proactive financial management. Here are four tips to help you shop responsibly and avoid unintentional friendly fraud:

1. Review your statements carefully
2. Communicate with merchants first
3. Keep track of subscriptions and recurring charges
4. Use virtual cards for online purchases

Review Your Statements Carefully

Regularly check your bank and credit card statements to ensure all charges are accurate and familiar. Pay special attention to merchant names, as they may appear differently on statements than their business names.

If you spot an unfamiliar charge, investigate it before assuming it’s fraudulent. Double-check transaction dates and amounts against your purchase records to avoid confusion. If you genuinely don’t recognize a transaction, you might have a valid claim to file a dispute with your bank.

Communicate With Merchants First

Fraudulent chargebacks can have a substantial impact on merchants. For each claim, they incur mandatory chargeback fees typically ranging from $20 to $100^[6], as well as other operational costs. Additionally, they have to deal with the complex and time-consuming dispute process.

To mitigate these challenges, businesses often prefer to work with their customers and offer solutions directly instead of having to deal with chargebacks.

It’s recommended to contact the merchant first before filing a dispute. They might provide a refund, product replacement, or correct any errors on their part, and you’ll likely get a faster resolution than you would through your bank.

Keep Track of Subscriptions and Recurring Charges

Unexpected subscription charges are a common source of friendly fraud. Luckily, these can be easily monitored and avoided if you adopt these simple habits:

• Set reminders for upcoming renewal dates.
• Review your active subscriptions regularly.
• Cancel services you no longer use.

Use Virtual Cards for Online Purchases

Virtual cards are a powerful tool for managing online transactions securely. You can use them to make purchases without sharing your actual credit or debit card with vendors and payment processors. Depending on the card provider, virtual cards can offer several benefits, such as:

• Protection of your actual credit card number
• Instant access to virtual card details for quick checkouts
• The ability to create single-use cards that automatically close after one transaction, limiting potential misuse

Virtual cards make it easy for consumers to track their spending, identify transactions easily, and maintain better financial records, limiting the risks of unintentional disputes. For example, you can create a new virtual card for each purchase or service so you can easily see which card was used for which subscription or transaction. This helps avoid situations where you might forget a purchase and later dispute it as unauthorized.

If you opt for an independent virtual card provider like Privacy, you can enjoy seamless card management, advanced spending controls, and robust fraud protection—all backed by bank-level security.

How Privacy Protects Against Accidental Charges and Disputes

Privacy is a BBB^®-accredited virtual card provider trusted by over 250,000 users. By adding your bank account or debit card to Privacy, you can generate virtual cards with unique 16-digit card numbers, expiration dates, and CVVs in a few clicks.

You can use Privacy cards just like regular payment cards for online purchases, but with an added layer of security—your real card information is always protected from merchants and potential fraudsters.

Privacy offers three types of virtual cards:

1. Single-Use Cards—These cards are used for one-off purchases and deactivate soon after the first transaction. This makes it less likely for you to forget a charge and helps minimize the risk of unauthorized or accidental charges.
2. Merchant-Locked Cards—These cards “tie” to the first merchant you use them with and can’t be used elsewhere. If an unapproved merchant attempts to charge your card, Privacy will decline the transaction.
3. Category-Locked Cards—These cards “lock” to a specific merchant category of your choosing, such as retail or dining. Privacy will block any transaction from merchants outside of the predetermined category.

Privacy lets you pause, unpause, and close your cards at any time to stop further attempts at charging them. 

You can also set spending limits on all your virtual cards, giving you more control over the type and amount of charges to the card. This can help reduce unintentional fraud caused by accidental renewals or hidden charges, as transactions exceeding this limit are automatically declined.

Beyond Robust Security—Privacy’s Convenience Features

Privacy offers you a range of convenience features to streamline card management and enhance your online shopping experience. The following table highlights some of the key features:

Level Up Your Online Security—Create Your Privacy Account

Privacy cards are available for U.S. residents over 18 who have a checking account with a U.S. bank or credit union. To get started and generate your first virtual card, follow these steps:

1. Sign up with Privacy
2. Provide your mandatory KYC information
3. Add a funding source to your Privacy account
4. Request and generate your first Privacy Virtual Card

Privacy lets you choose from four monthly plans, as shown in the table below:

Resources

^[1]Socure. https://offers.socure.com/rs/570-ENG-578/images/Socure_First_Party_Fraud_Consumer_Insights.pdf, sourced February 4, 2025

^[2]Sift. https://sift.com/blog/report-q4-2021-digital-trust-safety-index-navigating-the-new-normal-of-digital-fraud-and-disputes, sourced February 4, 2025

^[3] GovInfo. https://www.govinfo.gov/content/pkg/GOVPUB-FT-PURL-LPS73998/pdf/GOVPUB-FT-PURL-LPS73998.pdf, sourced February 4, 2025

^[4] Federal Reserve. https://www.federalreserve.gov/boarddocs/caletters/2008/0807/08-07_attachment.pdf, sourced March 23, 2025

^[5] Chargebacks911. https://chargebacks911.com/chargeback-legal-process/, sourced March 23, 2025

^[6] Chargebacks911. https://chargebacks911.com/chargeback-fees/, sourced February 4, 2025

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