Can You Go to Jail for Chargebacks

As someone who frequently deals with chargebacks, I’ve often wondered about their legality. I dove deeper into the topic.

In this guide, I’ll explain when chargebacks may lead to jail time and give a 101 on chargeback fraud.

Let’s first consider whether filing a chargeback could ruin your life.

Key Takeaways

• Filing a chargeback won’t send you to jail.
• Chargeback fraud can lead to over 20 years in prison.
• Chargeback fraud is disputing a valid transaction intentionally.
• Courts may treat chargeback fraud as grand theft, credit card fraud, or bank fraud.
• Friendly fraud accounts for over 75% of chargebacks.

Can You Go to Jail for Chargebacks?

Filing legitimate credit card disputes won’t land you in jail. However. Fraudulent chargebacks are illegal. Making false disputes to secure double refunds can result in criminal charges.

The Fair Credit Billing Act grants you the legal right to file chargebacks. It protects customers from unfair billing practices and allows disputes for reasons like:

• Fraud
• Unfair charges
• Product wasn’t what you expected

I’ll provide more on these causes later.

Once you file a dispute, the chargeback process begins. Your bank or card issuer investigates the issue and may reverse your charge.

We’ll explore this process in more detail later, but first, let’s talk about chargeback fraud.

First, let’s talk about chargeback fraud.

Summary: No.

What is Chargeback Fraud?

Chargeback fraud happens when customers dispute valid charges to get refunds while keeping items. It’s also known as “double-dipping.” This type of fraud occurs when you dispute a legitimate charge without valid reasons.

Imagine you ordered a Pikachu plush.

The merchant sends it on time, the product is as advertised, and there are no hidden fees. But you change your mind and file a dispute with your bank, knowing the merchant won’t offer a refund.

Or, you might see it as a “money-making scheme,” thinking you can exploit consumer protections for quick cash.

That is fraud.

This type of fraud cost businesses over $38 billion in 2023, leading them to adopt stricter policies to prevent it [1]. Friendly fraud — one type of chargeback fraud — makes up over 75% of chargebacks.

In friendly fraud, people unintentionally commit fraud.

For example:

Let’s say your 7-year-old nephew buys $100 worth of in-game items on your phone without your knowledge. And you then dispute it with your bank. You’ve “unintentionally” committed fraud. The transaction was technically legitimate.

Actual fraud only accounts for about 1% of chargebacks.

We have a separate guide that compares different types of fraud in the chargeback world.

Summary: Chargeback fraud is when customers file chargebacks to steal money from companies.

Can Chargeback Fraud Lead to Jail?

Yes, chargeback fraud can result in jail time. Most states punish fraudulent chargebacks with 1 – 3 years imprisonment. Penalties may include fines between $1,000 and $10,000. The punishment depends on fraud severity [2].

The law treats chargeback fraud like shoplifting. As you’re effectively taking items without paying.

For instance, in California, a person could face charges such as [3]:

• Mail fraud: Misusing postal services for deception.
• Wire fraud: Fraud conducted via electronic means, like phone or internet.
• Bank fraud: Targeting financial institutions or using bank accounts fraudulently.
• Credit card fraud: Using stolen card details or unauthorized charges.
• Petty theft: Theft involving items worth less than $950.
• Grand theft: Involves high-value property or losses exceeding $950.

It is hard to charge someone for chargeback fraud due to the challenges in proving their intent.

That doesn’t mean it’s impossible.

For example, a Pennsylvania man caused a chain of home improvement stores to lose nearly $650,000 through fraudulent chargebacks [4]. If convicted, he faces up to 10 years for access device fraud and 20 years for wire fraud.

There hasn’t been an update on this case…

Another case involved a person stealing over $9 million in “refunds,” earning him 10 years in the slammer [5].

How do you tell the differences of a legitimate dispute from chargeback fraud?

Summary: Can result in up to $10,000 in fines and jail time for potentially 10 or more years.

How Chargeback Fraud Differs from Legitimate Disputes

If you knowingly dispute a charge for a product or service you received as described, that’s considered chargeback fraud.

Examples include:

• Disputing an item you received and claiming it never arrived.
• Saying a charge was unauthorized when you know you made the purchase.
• Claiming an item wasn’t as described when it matches the details.

Let’s see this in action.

Here’s a legitimate chargeback:

You ordered a jacket that never arrived. After repeated attempts to reach the seller with no response, you file a chargeback to recover your money.

This is legitimate because you didn’t receive the product you paid for.

And here’s a fraudulent chargeback:

You buy a TV online, and it arrives in perfect condition. But you file a chargeback, claiming it was damaged, hoping to keep the TV for free.

Even if your claim isn’t investigated, this is chargeback fraud because you received the item as described.

Now that we know the legalities. Let’s look at criminal and civil case outcomes.

Criminal vs. Civil Cases With Chargeback Fraud

Criminal cases involve government prosecution for chargeback fraud. It requires proof beyond a reasonable doubt.

Civil cases, however, involve merchants suing customers to recover losses. It only requires a preponderance of evidence. This means the seller just needs to prove it’s more likely than not that fraud happened (over 50% certainty).

These cases come up when businesses seek repayment for financial losses due to fraud. For instance, if a business believes a customer dishonestly filed a chargeback.

Merchants typically support their case with evidence such as:

• Delivery confirmation screenshots
• Customer communications (e.g., emails or chat logs)
• Transaction records
• Proof the customer used or received the product (e.g., social media posts)

In civil cases, businesses usually sue for the disputed amount plus court fees.

Losing a civil case doesn’t lead to jail time. But. It may result in a court-ordered judgment requiring repayment.

As for criminal cases.

Chargeback fraud involves law enforcement. This happens in cases where individuals steal large amounts — hundreds of thousands or even millions of dollars.

The laws and penalties vary by state and country, but serious cases usually involve patterns of fraud, such as:

• Repeatedly buying high-value items, claiming they never arrived, and reselling them online
• Operating a “refund scam ring,” coordinating fraudulent chargebacks across multiple stores

For instance, remember those cases where people stole hundreds of thousands (and millions) of dollars? 

That's criminal territory.

Prosecutors handle these cases. And they can lead to jail time or large fines. Convictions in criminal cases may result in penalties and repayment requirements.

You should know what a chargeback is to not accidentally commit fraud.

What Are Chargebacks?

A chargeback occurs when a bank returns funds to a consumer after disputing a credit card payment. It protects consumers from fraud, duplicate charges, or undelivered items. The bank reverses the transaction by withdrawing money from the merchant's account.

You file a dispute and the bank investigates it. This requires you to submit evidence to prove the transaction wasn’t legit.

Let’s say a merchant sent you a broom instead of a Lego set. You could send a photo of the broom along with the receipt, showing it should have been a Lego set.

From there, the chargeback process would begin.

The process varies by card brand and payment processor.

For instance, Discover may ask the merchant for more information before reversing the charge. If the evidence shows, “yes, they did send a broom,” Discover would initiate the chargeback.

This step isn’t an actual refund. It’s a provisional credit until the investigation concludes, which can take up to 120 days.

If you paid $500 for the Lego set, the bank would pull the $500 and give it to you as a provisional credit. They’ll also charge the merchant’s payment processor a chargeback fee. Which they then pass onto the seller.

The point of the investigation is to determine whether the chargeback should stand. Once the investigation finishes, you’ll keep the refund if the dispute is upheld.

If the merchant wins, the provisional credit returns to the bank.

To start a chargeback, contact your bank or card issuer. We have a separate guide explaining how to file one.

What usually leads to a chargeback?

Summary: A chargeback is a force reversal of funds.

Common Situations Leading to Chargebacks

These are typical reasons for filing a chargeback:

• Accidental multiple charges for a single purchase
• Technical issues causing duplicate charges or unexpected fees
• Unrecognized charges, often due to purchases by friends or family
• Unauthorized purchases made with stolen payment information
• Product or service not matching the advertised description
• Charges from unfamiliar merchant names

Most of these are valid reasons to file a chargeback. If a transaction was unfair, filing a chargeback is a reasonable option. Even if someone stole your card information, that’s still unfair.

A family member stealing a card is a gray area. Technically, you didn’t authorize that purchase. That’s my opinion, though. And it seems like most other sources don’t support it.

What should you do if a merchant accuses you of chargeback fraud?

How to Handle an Accusation of Chargeback Fraud

If a business accuses you of chargeback fraud, keep these steps in mind:

• Find a lawyer: For serious cases or ongoing accusations, consult a legal professional.
• Gather evidence: Get purchase details like receipts, chat logs with the seller and return confirmations.
• Review bank chargeback terms: Verify that the dispute aligns with your bank’s policy.
• Respond promptly: Answer any communication from the seller or a mediator quickly.
• Contact the bank: Tell your bank that the chargeback wasn’t intended as fraud.

This is not legal advice. If you’re facing accusations, speak to a qualified attorney. Avoid relying on online information alone, as this is a serious matter.

While researching law firms, gather evidence, contact your bank, and explain your reasons for the dispute. Your lawyer will guide you on what to do next.

Good luck.

Let’s finish this guide off with some “Q” and “A.”

FAQs

Can You Be Sued for a Chargeback?

Yes, a merchant can sue if they believe your chargeback was fraudulent. They may take the case to small claims court to recover their funds.

Conclusion

You won’t be fined or jailed for a legitimate chargeback. But committing chargeback fraud — especially on a large scale — can result in prison time and fines.

To protect yourself, it’s important to understand chargebacks fully and avoid abuse.

Start with our guide explaining what chargebacks are and how they work.

Sources

• [1] Market forecasts for online payment fraud. Juniper Research. 6/26/2023.
• [2] Are there consequences for filing false chargebacks? Bachner & Associates. 4/8/2022.
• [3] Chargeback fraud and double-dipping. EG Eisner Gorin. 
• [4] Pennsylvania Man Arrested for Nationwide Fraud Scheme. US Attorney’s Office. 10/19/2021.
• [5] Man sentences 10 years for credit card fraud. Market Watch. 6/13/2018.