What merchants should do when they suspect card fraud


Suspect fraud on an otherwise approved credit card purchase? As a merchant you may be liable if you don’t follow the card network’s guidelines. Here’s what you should know.

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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.

Check out all the answers from our credit card experts.

Ask Elaine a question.

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 reflectnew procedures, so review them from time to time.

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.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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