Chargebacks911 Settlement Highlights FTC and AG Scrutiny of Chargeback Mitigation Practices

This week, the FTC and Florida AG announced a settlement with Chargebacks911, a chargeback mitigation company that touted its ability to help companies respond to and reverse consumer credit card disputes. The FTC and Florida AG sued the company in April 2023, alleging that Chargebacks911 used deceptive techniques to contest chargebacks and lower clients’ chargeback rates.

The chargeback mitigation practices specifically described in the complaint as unfair under Section 5 of the FTC Act and the Florida UDAP statute involve:

  • Using inaccurate documentation to challenge chargeback requests. For example, the complaint alleges that Chargebacks911 submitted screenshots of terms and conditions pages that did not actually exist on the websites that consumers used to purchase the disputed product. In other instances, Chargebacks911 is alleged to have affirmatively edited website screenshots to add disclosures that did not appear in the original purchase flow.

The complaint alleges that Chargebacks911 ignored obvious red flags that should have put it on notice of its clients’ problematic practices. For example, some of the company’s clients sold products through hundreds of separate merchant accounts over a relatively short period of time. In other instances, the brand of the product under dispute conflicted with the branding depicted in the documentation disputing the chargeback. Additionally, Chargebacks911 is alleged to have continued unsubstantiated chargeback disputes despite being put on notice that the FTC was investigating several of its clients for deceptive negative option practices.

  • Using microtransactions” to artificially lower a client’s overall chargeback rate. The complaint alleges that Chargebacks911 helped clients run numerous small-value transactions, known as microtransactions,” in order to artificially inflate the overall number of transactions processed through their merchant accounts and thus lower their chargeback rates. (The chargeback rate is calculated by dividing total chargebacks by the total number of transactions within a monthly period.)

Notably, Chargebacks911 assisted three companies that the FTC has targeted in recent years for engaging in deceptive negative-option marketing (Apex Capital, F9 Advertising, and AH Media Group). According to the complaint, Chargebacks911 disputed over one hundred thousand chargebacks on behalf of those three clients over a four-year period. It appears from the complaint that Chargebacks911’s practices likely came under scrutiny as part of the agency’s investigation into these other entities’ activities.

The settlement, which includes two individual officers, bans the company from providing chargeback mitigation services to companies selling cosmetics, dietary supplements, or drugs through negative option features and using affiliate networks to generate customers. (The order makes exceptions for publicly traded companies or companies with annual revenues over $100 million.) The order further prohibits Chargebacks911 from contesting consumer disputes using materials it knows or should know are inaccurate or misleading, and from engaging in practices that would artificially lower chargeback rates. The order requires a $150,000 payment to the Florida AG.

The take-away: chargeback mitigation services should never be used to suppress legitimate consumer disputes or circumvent card networks’ fraud monitoring systems. Companies offering these services should ensure the bases for disputes are reasonably supported and do not raise obvious red flags. Simply accepting documentation provided by clients while ignoring clear inconsistencies and suspicious behavior will not stave off federal or state scrutiny.