Misuse of the credit card dispute process often backfires on bewildered consumers in shocking ways they never imagined possible.
W
hen Christy and Paul Akeo touched down in Cancun last March, they expected to be soon poolside sipping tropical drinks. Instead, much to their surprise, they were arrested and taken to a maximum security prison on the outskirts of town.
Authorities said the detainment resulted from the couple’s 13 credit card disputes they’d filed against their timeshare company, Palace Resorts. According to Palace, the Akeos had fraudulently charged back nearly $117,000 in valid fees.
Additionally, Christy Akeo had been sharing her credit card dispute success in a Facebook group for disgruntled Palace timeshare owners. According to one of her posts, she had “helped thousands of group members” to resolve their timeshare problems in similar ways. She assured the group her methodology wouldn’t impact their credit.
Akeo was very wrong about the lack of repercussions from filing repetitive credit card disputes over fees associated with a legally binding contract. She just didn’t know it–yet.
After months of what Palace called bragging about her fraudulent activity and encouraging others to do the same, Akeo and her husband arrived in Mexico, where they were quickly jolted into reality. They had been under surveillance by Interpol (International Criminal Police Organization) for some time, and much more than their credit ratings was at stake.
Continue Reading Article After Our Video
Recommended Fodor’s Video
Interpol had flagged their passports, and as soon as they presented them to immigration, the authorities took the couple to jail to face fraud charges.
That’s where the couple stayed for the next 32 days in the most unpleasant conditions they’d ever experienced.
Misuse of the Credit Card Dispute Process Is Rampant Among Consumers
As a consumer reporter and advocate, I frequently receive requests for help from consumers who have misunderstood and misused the credit card dispute process. My case files prove that abuse of the chargeback system is rampant among credit card holders who, like Akeo, believe it’s an easy way to solve complaints against a business.
The Fair Credit Billing Act (FCBA) protects consumers using credit cards from merchant errors and outright fraud. That is its entire scope of coverage.
The FCBA outlines under what conditions a consumer can file a credit card dispute (also known as a credit card chargeback).
– Billing errors: A merchant charges your credit card incorrectly. For example, you buy a dress for $99, but the company bills you $199, and you have the receipt to prove the error.
– The merchant doesn’t deliver the goods or services as agreed: For example, you order a dress, and it never arrives, or you receive it, but it’s damaged.
– Fraudulent transactions: You didn’t buy a dress or anything else from a merchant, but charges appear on your credit card.
There are no other circumstances in which a consumer should file a credit card dispute.
Credit Card Chargebacks Can’t Break Legally Binding Contracts
Consumers can’t break legally binding contracts or settle legal disputes, as the Akeos seemingly believed, by way of a chargeback.
A credit card dispute also can’t be used to handle complaints involving a subjective opinion about the quality of a service or product. For example, if you stay in a hotel and don’t like the hard mattress or get a massage you didn’t particularly like, you can’t dispute the charge afterward.
Yet consumers do file chargebacks every day for goods and services of low and high values under circumstances that do not qualify for a credit card dispute.
Consumers like Karen Springer, who bought and canceled a nonrefundable Frontier Airlines ticket for her son. When the airline failed to refund the nonrefundable ticket, she decided to force Frontier to give her money back. She filed a credit card chargeback and told Capital One a little fib, claiming the ticket was refundable.
Frontier Airlines responded to the dispute with a plethora of evidence proving that Springer’s ticket was nonrefundable, and she knew it, clicking a box and acknowledging that fact at checkout. Springer lost the credit card dispute and the $463 future flight credit she had originally been issued after cancellation.
Then she sent me her request for help and told the same little fib about the refundable nature of her ticket.
But when I reviewed the same documents Capital One had used to reject her credit card dispute, I pointed out that the ticket wasn’t refundable. There was no basis for the credit card dispute in the first place. She then asked if she should get her flight credit back since the $463 had been returned to Frontier Airlines.
I asked my executive contact at Frontier Airlines how the carrier handles chargebacks like Springer’s. Many airlines take back the credit and do not return it if a passenger unsuccessfully disputes valid fees (often called “friendly fraud”).
Frontier is one of those airlines. It does not restore flight credit if a consumer files what it considers a fraudulent credit card dispute.
“Hi Michelle, Thanks for reaching out for clarification on this. Due to the costs incurred by Frontier when a chargeback is filed by a customer – even when it is ultimately declined by their bank – our policy states that credits initially offered to the customer are no longer valid. However, as a customer service gesture, we are making a one-time exception for this customer and honoring the credit that we provided earlier this year.” – Frontier Airlines Spokesperson
Springer got lucky this time and learned a valuable lesson about filing credit card disputes: If you agree to nonrefundable terms when you purchase an item, you can’t use a credit card dispute to change those terms later.
What About When a Consumer Wins a Credit Card Chargeback by Default?
Sometimes, consumers win credit card disputes by default.
And that’s when the trouble really begins.
Although there is no public information about the specifics of the 13 credit card disputes filed by the Akeos, I suspect that Palace ignored the inquiries by American Express. It is rare that a consumer would win a chargeback if the merchant responds with any supporting evidence.
Consumers should know that it isn’t particularly unusual for large corporations to entirely ignore credit card disputes. Cruise lines and car rental companies routinely decline to participate in the credit card dispute process. However, that doesn’t mean there won’t be repercussions if a chargeback becomes permanent. In fact, the opposite is true. In most cases, there will be severe repercussions.
For most credit cards, merchants have 20 days to respond to a consumer’s dispute (Mastercard allows 45 days). If a merchant doesn’t respond to a credit card company’s request for additional information within that timeframe, the chargeback is closed in favor of the consumer. This gives the consumer the impression that they’ve “won” the battle and it’s over.
Contrary to popular belief among consumers, winning a credit card dispute doesn’t mean the debt is absolved. The end of a chargeback investigation only definitively ends the credit card company’s involvement in the conflict.
Consumers should always keep in mind: A credit card dispute is not legally binding and doesn’t erase your debt; it just removes it from your credit card balance. The merchant is always free to pursue the debt in other ways outside the bounds of the credit card company. If the amount charged back is excessive, as in the case of the Akeos, it’s no longer considered “friendly fraud”–it’s just fraud.
Most people who ask me for help negotiating the surprising aftermath of a credit card dispute gone wrong don’t end up in jail. But they do end up getting banned from their favorite car rental companies, airlines, cruise lines, and more. These distraught consumers also have collection companies relentlessly pursuing them, and their credit ratings have taken a hit. Some get permanently dumped by their credit card companies.
Before you carelessly file a credit card dispute, you should make every effort to resolve your complaint directly with the company. And you must be absolutely sure that the terms and conditions are in your favor and you’re owed the refund you’re requesting.
If you need help negotiating a problem with a company, my organization, Consumer Rescue, provides free mediation services and guidance to travelers and other consumers faced with problems (including with timeshare companies). But keep in mind that you should reach out for help before you file a credit card dispute, because after you lose one, many companies will no longer be willing to discuss your case.
How Did This Couple Get Out of Mexico?
After a wild media frenzy and a bit more than a month spent in that maximum security prison, Michigan congressman Tom Barrett flew to Mexico and successfully negotiated the Akeos’ release.
The couple agreed to pay back the money they had received through the 13 credit card disputes. In return, Palace Resorts agreed to donate that money to a nonprofit for orphan children in Mexico, according to a statement provided to USA Today by the company.
The Facebook page where Christy shared her bad advice for consumers is gone. The couple has now faded into obscurity.
It’s safe to say they won’t be vacationing in Mexico again. Nor will they be offering any additional timeshare exit advice. And that’s a very good thing.