Small business owners defrauded, then abandoned by banks to suffer a loss of $ 23,000

When a $ 23,000 order for catering truck equipment arrived at Brigitte and Dan Loik’s ailing catering equipment business in June, the couple hoped it was a sign that hard times were on. being reversed.

The Burnaby, BC-based company struggled to stay afloat during the pandemic.

The client’s name was Barry Alard and had the corresponding ID and Visa card. Over the next week and a half, he came several times to pick up parts of the order and pay for them.

But when that order turned out to be a credit card fraud, the couple say they were put out to dry twice: once by the fraudster who left with the goods, and then by the banks.

“It amazes me that they can do this to us,” Brigitte told Go Public. “Why is it on me?” “

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Each time, Brigitte says she did whatever was required by bank rules: verify the man’s identification and signature against the card and make sure he was using the chip and the PIN code.

She also obtained authorization codes approving all transactions. But by the end of July, Chase Bank, which handled the Loiks’ credit card transactions, had withdrawn $ 23,032.80 from their business account without warning.

The bank said the legitimate cardholder was claiming the fraud and the Loiks were required to pay the money because no chips or PINs were used in the transactions.

“None of this makes sense,” Brigitte said. “I was standing about a meter away and saw him physically putting the card in the machine… He entered a PIN code, then he waited for it to be approved. I swear by my mother’s life, and I would swear on that in court. “

Vanessa Lafolla, an expert in bank fraud, is surprised that Chase is attacking the Loiks “in such a fierce way”.

The former bank teller turned fraud prevention researcher at St. Mary’s University in Halifax says that despite what most banks say, no system is foolproof.

In this case, she said, “what you probably have is a forged card or a fraudulent card that was created to specifically scam merchants… there really is no way for merchants to protect themselves against it. something like that.”

The Loiks tried for months to solve the problem on their own.

After Go Public contacted Chase, the bank first offered to reimburse $ 5,000 as a “gesture of goodwill,” saying it had reviewed the account and understood “the challenges the chargebacks have caused.”

After repeated questions from Go Public, Chase then returned all but $ 6,272, the amount of two of the June transactions. He didn’t say why.

Traders say this is not uncommon; 14% of Canadian businesses surveyed say they have faced disputes over credit card transactions, according to a 2019 survey of more than 7,000 members of the Canadian Federation of Independent Business (CFIB).

“The worst is [businesses] did everything they’re supposed to do. So it’s incredibly frustrating and can be very damaging to many of these small businesses, ”said Corinne Pohlmann, senior vice-president of national affairs and partnerships for CFIB, a not-for-profit organization that represents over 95,000. small and medium enterprises. medium-sized businesses.

Banks blame each other

Go Public spent months going back and forth with Chase and the Royal Bank, who issued the credit card used in the fraud.

We have repeatedly asked why the Loiks had to pay for this and who made this decision, but the details are still unclear.

Chase accuses RBC. In a letter dated September 30, she told the Loiks there was nothing she could do because RBC had decided the couple should take the loss.

But RBC says Chase missed the deadline to submit the necessary evidence when the couple tried to overturn the decision – so the Loiks litigation died there.

RBC also claims that Chase also did not take the Loiks case to Visa’s arbitration process, which can only be done by a financial institution, not directly by business owners.

Either step could have helped the Loiks recoup their losses. Chase said in a letter to the Loiks that it is the “industry standard” for businesses to pay for fraudulent transactions when card information is entered manually.

Go Public asked which industry standard the bank was referring to, but did not get a response.

Chase also told the Loiks that they should have submitted “acceptable documents” to substantiate their dispute, including a signed receipt or invoice. The Loiks had already supplied both.

Insult to injury

Adding insult to injury, Brigitte notes that businesses already pay a “swipe fee” – up to two and a half percent for every credit and debit card transaction.

A portion of these fees go to the banks in exchange for accepting the risks involved, such as fraud. Yet, she says, banks and credit card companies are forcing small businesses to assume all risk and loss.

“They’ve made hundreds and thousands of dollars in fees. They’ve billed us so far and there’s no help.”

Canadian businesses paid at least $ 5 billion in fees in 2019, according to the CFIB. These fees are set by payment card networks like Visa and Mastercard, with the revenues being split between the banks involved and the payment processors.

Based on anecdotal information from business owners, Pohlmann says traders usually lose disputes with the financial companies involved, and even when they initially win, this is often overruled.

Pohlmann says merchants are often forced to pay for fraud, even when they’ve followed all the rules set by banks and credit card companies.

She says it’s because the government allows businesses to set their own rules when deciding credit card disputes.

“So your appeal process is with the credit card industry itself,” Pohlmann said.

The CFIB is pushing for new rules to force credit card providers to assume fraud loss when merchants have done everything they should to verify a transaction.

Chargeback fraud statistics are not available because banks and credit card companies will not share them.

As of fall 2020, the federal government has been revising the Voluntary Code of Conduct for the Credit and Debit Card Industry in Canada.

The review will examine “potential ways to improve the benefits of the Code for small and medium-sized businesses,” Finance Canada spokesperson Marie-France Faucher wrote in an email to Go Public.

There is no timeline for when it will be completed.

But any change will come too late for the Loiks to get the last $ 6,272 of their money back.

Brigitte says she’s relieved they’ve got most of it back, but says the dispute resolution system needs to change.

“I was closed from day one with the [bank’s] answers on my dispute… something needs to be done to protect merchants, to protect businesses, ”she told Go Public.

“How many other people have had this, and there’s no one to help them?” “

Burnaby RCMP say it’s an open investigation.

Go Public tried to locate the fraudster, but our calls and emails went unanswered.

We also went to the address he provided to the Loiks, which turned out to be a park.

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