Living in NYC for the last 10 years has been an eye-opening experience. I think I’ve seen it all—then something new and startling crosses my path. Recently, that shock to my system was courtesy of Stan.

A Homeless Musician with Amazing Equipment

Sadly, the homeless population is always in a state of flux; lately, it seems to be ever increasing. I can’t remember the last time I ventured out and didn’t witness one of these poor, unfortunately souls.

While homeless men and women lounge on nearly every street corner, musicians aren’t as common. However, I’m always pleasantly surprised when I come across a musically inclined homeless individual.

One particular homeless musician caught my eye the other day because he was playing one of the nicest guitars I had ever seen. Naturally, I had to stop to enjoy his talents for a while. When his set was finished, I gladly sat down to chat.

Stan Taught Me about Chargebacks

Stan told me about his current situation and how he ended up that way. Apparently, his financial troubles stem from chargebacks. I didn’t even know what chargebacks were, let alone how they could make someone be homeless!

Chargebacks are a forced credit card refund. If consumers make purchases with their credit cards, those purchases can be refunded by the bank. Chargebacks are a consumer protection mechanism, intended to keep consumers safe from fraud. Unfortunately, as Stan proved, consumers are using chargebacks in ways they shouldn’t be.

Stan sold electric and acoustic guitars online. For years, business was going great, but all of a sudden the number of chargebacks he received skyrocketed. Stan claims consumers were committing “friendly fraud.”

Apparently, friendly fraud happens when a consumer authorizes the transaction, but then later disputes it with the bank. For example, the consumer might claim an item wasn’t delivered (when it actually was), the transaction wasn’t authorized (when it really was), or the quality was subpar (when it wasn’t at all).

According to this article, Monica Eaton-Cardone of Chargebacks911 estimates friendly fraud contributes to 20% of the payment card industry’s annual losses, or $200,000,000.

She goes on to explain that only about 10% of all chargebacks are caused by verified fraud or identity theft; the rest is attributed to friendly fraud.

It sounds like Stan’s situation mirrors what Eaton-Cardone estimated. Friendly fraud chargebacks came rolling in, one after the other and Stan couldn’t keep up. Eventually, Stan’s business had to close up shop.

Because Stan received so many chargebacks, his acquiring bank (the financial institution that processed his credit card transactions) terminated his merchant account. He no longer had a way to process credit or debit card transactions. And without credit card payments, an online store won’t survive very long!

Again, industry analysis shows that the action taken by Stan’s acquiring bank wasn’t surprising. Acquiring banks are raising the price of processing fees and discontinuing contracts with merchants who are perceived as risky. Chargebacks negatively affect the banks too, and it isn’t surprising these financial institutions are looking to protect their own assets.

Stan’s New Job

After his acquiring bank terminated his merchant account and basically forced him out of business, Stan had to find other ways to sell his inventory of guitars. All those chargebacks he received racked up significant fines that he still had to pay back to the bank.

There was one guitar, though, that Stan couldn’t part with. And it turns out it is a good thing he hung onto it. Now, without a regular source of income, Stan is homeless. He uses his one last guitar to earn a few meager pennies each day and help educate consumers about chargeback fraud.

If you’ve been engaging in friendly fraud, intentionally or accidentally, take heed of what Stan has to say. Contact the merchant for a refund; don’t use chargebacks as an easy way to get your money back. Maybe Stan wouldn’t be homeless if consumers hadn’t tried to cheat the system.