In an era defined by online shopping, contactless payment scams, and artificial intelligence, consumers face growing exposure to fraud. A report by the Consumer Federation of America (CFA) found that Americans lost approximately $148 billion to online scams and crimes in 2025 — a rise of nearly 26% from 2024, averaging roughly $1,009 per household. The CFA also identified Facebook and Instagram as the platforms most commonly associated with online scams.

As consumer scams and confusing credit card charges have increased, more people are turning to chargebacks to recover their money, Bloomberg reports.

A chargeback occurs when a customer disputes a transaction with their bank — citing reasons such as fraudulent charges or billing errors — and the bank reverses the transaction, returning the customer's funds. The chargeback system originated with the Fair Credit Billing Act of 1974, which established consumers' right to dispute billing errors on credit card statements. Today, card networks such as Visa and Mastercard define the specific reason codes and procedural rules that govern how disputes are categorized, reviewed, and resolved. To qualify, the customer must provide supporting information and, in some cases, evidence of the fraudulent charge. The bank then reviews the request and determines whether to approve the reversal.

While chargebacks serve as an essential tool for addressing suspicious transactions, some consumers are exploiting the process to obtain refunds they are not legitimately owed.

The 'Friendly Fraud' Boom

According to Juniper Research, American consumers filed 158 million transaction disputes in 2025, marking a 29% increase from 2021. Michael Greenwood, a senior research analyst at Juniper focusing on digital payments, told Bloomberg that while some disputes stem from genuine fraud, a significant portion can be attributed to shoppers — particularly younger ones — engaging in what is known as "friendly fraud."

One form of this friendly fraud arises when shoppers genuinely do not recognize a legitimate charge. Because online purchases can route through multiple platforms, vendors, and payment processors, the merchant name appearing on a bank statement may seem unfamiliar, prompting the customer to dispute a transaction they actually authorized.

In other cases, consumers are exploiting subjective chargeback categories. For example, disputing a transaction on the grounds that a product or service was "not as described" is inherently subjective and can result in a refund even when the claim is questionable. A customer who orders a pizza and feels it should have had more pepperoni could attempt a chargeback — though unless the restaurant promised a specific number of pepperoni slices and the count fell short, the transaction is legitimately the customer's responsibility.

Some consumers are requesting chargebacks despite having received a product or service as agreed, simply as a means of obtaining a refund.

Jim Mortensen, a strategic adviser in the fraud and anti-money-laundering practice at the research firm Datos Insights, told Bloomberg: "There's people that feel like, oh, this is just sticking it to the man, so to speak. It's not really, like, fraud."

Friendly fraud, however, is still fraud — and it carries consequences for both consumers and businesses.

The Impact of Chargeback Fraud

Fraudulent chargeback requests are classified as a form of first-party fraud, which the software company Socure defines as "the use of one's own identity to open an account and/or commit a dishonest act for personal or financial gain."

While criminal prosecution for friendly fraud is unlikely — beyond being required to pay for the original transaction — consumers who engage in the practice risk being flagged in fraud monitoring systems, having transactions declined, and facing restrictions on their bank accounts.

Businesses bear the heaviest burden, absorbing chargeback losses daily through lost revenue, lost inventory, and per-dispute chargeback fees levied by acquiring banks. When a chargeback is filed, the merchant is typically charged a fee regardless of whether they ultimately win the dispute, meaning even successfully contested claims carry a cost. Small businesses are especially vulnerable, as chargeback losses can quickly threaten their viability.

The growing volume of disputes has fueled demand for chargeback management and fraud-detection technology among merchants. Merchants can contest chargebacks through a process called representment, in which they submit evidence — such as delivery confirmations, communication logs, or transaction records — to the card network in an attempt to overturn the reversal. The outcome is not guaranteed, and many small businesses lack the resources to pursue every dispute.

The issue has become widespread enough that many small business owners have taken to TikTok to share their experiences. When the accessory brand Scrunchie Luxe won a chargeback dispute, the owner described it as "every small business owner's dream" — her first chargeback victory.

"If you're a small business owner, you'll know that this doesn't happen," she said. She explained that a customer had raised an issue with their order, which she resolved. Weeks later, Scrunchie Luxe nonetheless received a chargeback. The owner submitted her evidence and ultimately won the dispute, despite expecting a financial loss.

"Usually you're fighting a losing battle with chargebacks 'cause they always side with the customer," she said. (TikTok)

Source: Consumer Federation of America | Bloomberg