What merchants should do when they suspect card fraud

Knowing the card network's guidelines is key to protecting yourself

Your Business Credit with Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com. Her book, “The Million-Dollar, One-Person Business,” was released in 2018. She writes "Your Business Credit," a weekly column about small business and credit, for CreditCards.com.

Ask Elaine a question, or see if your question has already been answered in the Your Business Credit answer archive.

Can I deny an otherwise approved purchase if I suspect the credit card transaction is fraudulent?

Merchants should never process any transaction if they believe it’s fraudulent. If you followed the rules and still think a transaction is fraudulent, call your issuer.

Expert Q&A

Check out all the answers from our credit card experts.

Dear Your Business Credit,

If someone buys from my store on credit card, and it's approved, am I legally allowed to not give them the item if I believe it is fraudulent? – Scott

Dear Scott,

You should never process a transaction that you believe is fraudulent and not just because you don’t want to help criminals cheat the system.

There are some situations in which merchants may be liable for processing fraudulent transactions, which we outlined in our story “7 merchant tips to understanding EMV fraud liability shift.”

I highly recommend that all merchants read it to make sure they have protected themselves from liability.

See related: How a business can fight fraudulent online orders

How to avoid processing fraudulent transactions

In addition to technical methods of fraud prevention, such as having a chip card reader in place, there are other ways to avoid processing fraudulent transactions that you should use. Make sure you train any team members who process transactions to use these anti-fraud measures to protect you.

First, take an hour to familiarize yourself with the rules the card issuers have set for merchants handling fraudulent transactions. No, this is not much fun, but as a merchant, you are obligated to follow these rules or you could lose the privilege of accepting a particular card brand.

Sometimes, when stores get busy, there’s a tendency to relax a bit on following card verification procedures.

  • By making sure you and your team are following the rules to the letter, no matter how long the line at checkout, you will likely weed out suspicious transactions.
  • Criminals are always on the lookout for easy targets or situations in which merchants are letting down their guard. If your team never relents on following the rules, crooks will likely try to find a merchant who is more lax.
  • These rules sometimes change to reflect new procedures, so review them from time to time.
Tip

Tip: If you're a merchant looking to keep fraud costs down, knowing the difference between counterfeit card fraud and stolen card fraud, among other things, is key. To learn more, read "How retailers can avoid paying for fraud."

Follow your instinct – and verify

What happens if you follow the rules but your gut instinct is still telling you a transaction is fraudulent? Trust your instincts and verify a bit more.

In such a scenario, do not discuss your suspicions with a customer or try to seize the card. You might offend a person who turns out to be the legitimate cardholder, for one thing.

Even if someone is actually an identity thief or other fraudster, confronting them could backfire and result in harm to you or your employees.

Instead, call your credit card issuer’s authorization center and ask for a “Code 10” authorization.

Follow the instructions of the operator and, if the transaction is denied, ask for another form of payment. The operators at the Code 10 lines are trained to help you if law enforcement is needed.

  • For Visa, you can find further guidance on how to handle suspicious transactions in the card acceptance guidelines on pages 35 and 54.
  • Mastercard also has published guidelines on what to do if you suspect fraud.
  • American Express’s Merchant Operating Guide includes instructions on deterring fraud on page 55. 
  • Discover has outlined best practices for spotting and preventing fraud.

It’s sad that there are so many people willing to commit fraud, but that’s reality. As a merchant, you have to be proactive about stopping it or you could end up footing the bill.


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Updated: 08-14-2018