Online Sellers: Can I Sue a Customer Over a Bogus Chargeback?

Online Sellers: Can I Sue a Customer Over a Bogus Chargeback?

Posted by Big Brand on 13th Sep 2021

No online seller (or ANY business, for that matter) enjoys chargebacks but the situation is extra awful when the chargeback is 100% bogus, such as when a customer personally signs for their parcel then denies every getting it, or when a buyer claims their credit card was “stolen” and that they didn’t authorize the transaction, however they ordered many times prior using the identical information. Or, even worse, the person who has ordered numerous times from you over the course of 6 months decides to charge back every single purchase because they want to keep your inventory and also enjoy a refund. Yep, it happens. Yep, it’s terrible. But yep, people do it and have no remorse. So, the question becomes “Can I sue a buyer who filed a chargeback?”. Here’s the answer:

First, as a seller you need to fight the chargeback. If you need advice about disputing chargebacks, we have a ton of amazing content to help you:

A Complete Guide to Fighting and Winning a Chargeback

A Complete List of Evidence You Need to WIN a Chargeback

5 Tips for Disputing Chargebacks

Chargebacks: What is Friendly Fraud

However, I assume you already HAVE fought it and the evil buyer “won” even though they are a total scammer. Unfortunately, the decision of who “wins” the chargeback is 100% the responsibility of one random stranger who works for the BUYERS credit card company. Although a seller can often win a bogus chargeback, it all depends on the person reviewing your documentation… and if they even actually LOOK at it. You can have the best evidence ever but if the chargeback reviewer doesn’t bother to take a peek at it, the entire situation sucks for you.

So, assuming you DID fight it and the chargeback reviewer WRONGLY awarded the funds back to the buyer, and if the buyer still has your merchandise, you can APPEAL the chargeback decision. If you appeal you HOPE you will have a different charge card employee review the case and see that you were defrauded by the buyer. The appeal gives you a second chance to have the funds correctly reimbursed to you but can also be very expensive.  Learn all about chargeback appeals by reading our blog post.

If you again lose the appeal you can now consider taking further action or you could skip the Appeal step.

The next best step is to send the buyer a CERTIFIED LETTER demanding the return of the merchandise OR repayment of the wrongly-reimbursed purchase amount. In the Certified Letter you want to clearly outline the exact issue and include the documentation showing the buyer “won” the chargeback and therefore is currently in possession of fraudulently obtained merchandise. The letter should let the buyer know that if they do not return either the merchandise or the money, you WILL proceed with legal action against them.

Certified Letters are USUALLY enough to make most people take action to avoid you taking action against them.

Having a lawyer compose the Certified Letter / Legal Demand for you will likely cost around $100-$150. If you are a strong writer you can likely compose the letter on your own then have the lawyer review it, make any necessary changes and fire it off. This can get the cost down to $35 - $75, providing you really ARE a strong writer who understands legal terminology. Another thing that can help drive down cost is to compile all of the evidence for the lawyer in a beautifully assembled timeline.

TIP: Be sure to tell the lawyer this situation is “theft through deception”

Let’s now assume that you have fought the chargeback (and lost) and you have sent the Legal Demand and the person still doesn’t want to cooperate. The next option to consider is to file a police report in the BUYERS city. This is a gamble because some police take this very seriously whereas others won’t even allow you to file a report. Either way, it is worth a try! If the police (and detectives) are younger in age chances are they will understand the situation and take the time to contact the buyer and try to assist you. We have had seriously AMAZING detectives in Wisconsin as well as other states go the extra mile to drive to the buyers residence and confront them. There has been multiple times where the buyer was even arrested due to having non-related outstanding warrants or other issues! (Note: The police are NOT going to arrest anyone over filing a bogus chargeback, but they may scare the hell out of them, or possibly retrieve your merchandise or even convince the buyer to “do the right thing”. Regardless, it is worth a try!)

TIP: Be sure to tell the police / detective this situation is “theft through deception” because if you use the word “Fraud” they will tell you “this is a civil matter, not a criminal matter”.

If you refuse to chalk it up to a loss + a lesson learned, the final option is suing.

There are two types of lawsuits:

“Small Claims” is without lawyers. Both parties represent themselves. Filing a small claim case is usually very cheap (around $25 - $50, depending on state). Small Claims cases are typically very quick; usually only a single day in court. The only downside of Small Claims is your judgment is limited to $3,000 - $5,000 maximum, depending on the state you file in.

Or you can file an actual lawsuit, which would require you to retain a lawyer. This is NOT an option you want to go with unless the amount of money in question is VERY large.

A “real lawsuit” can take literally YEARS and your legal fees will add up to thousands, ten thousand or even tens-of-thousands of dollars.

The thing you need to understand is that you will need to sue the buyer in THEIR home town. This can be exceptionally problematic if the buyer is in Hawaii and you are in Alaska, or if the buyer is in California and you are in New York, the cost of traveling to the buyers home town can add up to more than the amount of the lawsuit. BUT there can be an exception if the buyer is also an online seller. I don’t really want to get into details right this moment because this is a major gamble and most likely this loophole wont help you, so just ASSUME you will have to travel to the buyers home town.

With that in mind, you are going to have a couple issues. The first is that you will have to file the paperwork within the buyers local district court and you will have to have them served with the papers. The buyer will then have around a month of advanced notice before the court date. Depending on the technology of the court system in the buyers city / district, this may (likely) require you to travel to the courthouse to file the paperwork then travel back again for the court date. Now you’re looking at, at least, 4 flights and likely 2 nights in a hotel.

Now lets say that you do make the two round-trip flights, you do stay 2+ nights in a hotel, you do pay for the small claims case and you do incur the cost of having the buyer served with paperwork…. Lets even say you FINALLY win the judgement you are rightfully owed…. Unfortunately… this doesn’t mean you will get a penny and collecting your judgement is substantially complicated when the buyer lives far away because when the buyer refuses to pay you will have to begin an entire new process of judgement collection. Judgement Collection is actually more expensive and time consuming than winning the judgement because it’s an ongoing process of basically tracking the person down and attempting to legally force them to cooperate. The Judgement Collection phase can be 10x more expensive and 100x more time-consuming and 10,000,000x more stressful and aggravating than everything you have gone through thus far.

So, to answer your original question: Can I Sue a Customer Over a Bogus Chargeback? The answer is YES. But SHOULD you? Maybe or maybe not.  Unless the buyer lives very close to you you are probably better off Appealing the Dispute decision

Often the better option is to figure out how the issue happened then revise your process to try to prevent it from happening again. There is NO WAY to never receive a bogus chargeback again, however you can take measures to curve the amount of fraudulent chargebacks.

Additionally, be sure to write off all of these types of losses on your taxes!!! 

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