WHERE IT STARTED
FIRST SEEN: 1970s (as chargeback abuse); mass scale since c. 2010 with e-commerce · GOING FOR: About 50 years; the dominant dispute type online for the past decade
The mechanism dates to the US Fair Credit Billing Act of 1974; abuse was first tracked as a distinct problem by card networks and merchants in the 1990s mail-order and early e-commerce era, and no single 'first case' is recorded.
The chargeback was created as a consumer protection: the US Fair Credit Billing Act of 1974 gave cardholders the right to dispute a charge with their bank and have it reversed. 'Friendly fraud' is the industry's term for abuse of that right by the cardholder themselves - keeping goods or services and then disputing the charge as 'unrecognised' or 'not received'. It grew with mail order and then exploded with e-commerce, where card-not-present rules put the loss on the merchant. Card networks now treat it as a distinct category: Visa's 2023 Compelling Evidence 3.0 rules and Mastercard's 2025 'First-Party Trust' programme were both built to let merchants fight first-party disputes with transaction history.
HOW IT WORKS
A customer buys something with their own card, receives it, and then calls the issuing bank to dispute the charge, claiming it was unauthorised, never delivered, or not as described. Because banks usually side with the cardholder on card-not-present transactions, the merchant loses the goods, the payment, and a dispute fee, and its chargeback ratio rises. Variants include 'cyber-shoplifting' (dispute after use), family fraud (a household member's purchase disputed as unrecognised), and organised versions where a business disputes charges on behalf of third parties and intercepts refunds, as in the Michael Cooper case. A related merchant-side abuse is 'chargeback ratio laundering', where a high-risk merchant runs fake sales to keep its dispute ratio under the networks' thresholds.
Customer disputes a charge but never contacted the merchant firstRepeat disputes from the same cardholder or address on delivered ordersDispute filed after the product was used, downloaded or streamedDigital goods or subscriptions disputed as 'unrecognised' months laterMerchant with a sudden jump in low-value sales just before a chargeback-ratio review
HOW USEFUL IT IS TO CRIMINALS
It costs the fraudster nothing but a phone call and requires no technical skill; success rates are high because issuers side with cardholders on most card-not-present disputes, and merchants win only a minority of representments. Individual friendly-fraud disputes are almost never prosecuted - criminal cases such as Michael Cooper's only arise when a business industrialises the process.
THE DAMAGE IT HAS CAUSED
$34 billion
US card transactions disputed and charged back in 2025 (industry estimate; no government total) — Chargebacks911 Chargeback Field Report, 2026
Industry estimates put disputed US card volume at about $34 billion in 2025, with friendly fraud the largest component (Chargebacks911, 2026); no government body publishes a total. The biggest prosecuted single case is Michael Cooper's $9 million scheme. Non-money harm: merchants pass dispute costs to all customers through higher prices and stricter checkout friction, and small merchants can lose their card processing altogether when ratios breach network thresholds.
$34 billion Card transactions disputed and charged back to US merchants in 2025 (industry estimate) (Chargebacks911 Chargeback Field Report, 2026)
61-75% Share of e-commerce disputes that merchants classify as friendly / first-party fraud (industry surveys) (Mastercard First-Party Trust announcement, June 2025; Chargebacks911, 2026)
$4.61 Total cost to a US merchant for every $1 of fraud loss once chargeback fees and replacement goods are counted (LexisNexis True Cost of Fraud Study, 2025)
WHO USES IT MOST
MOST OF ALL: 🇺🇸 United States ▸
Home of the chargeback right and the largest card-not-present market; industry surveys put US disputed card volume at roughly $34 billion in 2025, with friendly fraud the majority of e-commerce disputes (Chargebacks911 Field Report 2026; Mastercard, June 2025).
United States (largest disputed-volume market)United Kingdom (Section 75 and chargeback abuse)Brazil (high card-not-present dispute rates)India (call-centre merchants hiding chargeback ratios)
GOVERNMENTS LINKED TO IT
No government is documented as using this method.
NOTABLE PEOPLE WHO USED IT — RANKED BY PROFILE ORDER (NOT BY AMOUNT)
#1 Michael Cooper CONVICTEDREPORT PENDING
About $9 million from up to 76 merchants · 2012-2016
Orlando man who ran 'arbitration' and fake law-firm entities that disputed card charges on behalf of thousands of customers of internet service companies and kept the refunds; sentenced to 10 years in prison.
SOURCE: US Attorney's Office, Eastern District of Virginia, sentencing release; Chargebacks911 case summary
#2 Michael Brian Cotter CONVICTEDREPORT PENDING
Not published (scheme concealed chargebacks on a multi-year tech-support fraud) · 2016-2020
CEO of a Rhode Island tech-support company with an Indian call centre who ran thousands of sham transactions with virtual debit cards to hide the firm's excessive chargeback ratio from banks; sentenced to 28 months.
SOURCE: US DOJ Office of Public Affairs sentencing release via Patch, April 2026
#3 Thomas Wells CONVICTED (GUILTY PLEA, FEB 2025)REPORT PENDING
Not published · 2015-2023
Florida payment-processing broker who pleaded guilty to misrepresenting high-risk merchants (including ones already terminated by Visa and Mastercard for chargebacks) as low-risk retailers to obtain card processing.
SOURCE: US DOJ Office of Public Affairs, Feb 2025
SOURCES
Chargebacks911, Chargeback Field Report 2026
Mastercard press release, 'Scaling efforts to combat friendly fraud', June 2025
LexisNexis Risk Solutions, True Cost of Fraud Study, 2025
US Attorney's Office EDVA, 'Man sentenced in $9 million credit card refund scheme' (Michael Cooper)
Patch / US DOJ, Michael Brian Cotter sentencing, April 2026
US DOJ, Thomas Wells guilty plea, Feb 2025
Wikipedia, 'Friendly fraud' (pointer)