Small business owners were a victim of fraud and the banks left them to take $23K loss

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Brigitte and Dan Loik’s owned a restaurant equipment business in Burnaby, B.C., which was heavily struggling to stay afloat during the pandemic.

When a $23,000 order for food truck equipment came in the couple hoped it was a sign the tough times were turning around.

The customer called himself Barry Alard, and had identification including a Visa card to match. Over the next week and a half, he came in several times to pick up parts of the order and pay for them.

The order appeared to be credit card fraud, the couple says they were scammed twice: once by the fraudster who drove off with the goods, then by the banks.

“It just blows my mind that they can do this to us,” Brigitte told Go Public. “Why is this on me?”

In both cases, Brigitte says she did everything required legally: checked the man’s identification and signature against the card and made sure he used the chip and PIN.

She also received authorization codes approving all of the transactions. In July, Chase Bank, which handled the Loiks’ credit card transactions, had pulled $23,032.80 out of their business account without warning.

The bank said that the legitimate cardholder was claiming fraud and that the Loiks were at fault for the money because no chip and PIN was used in the transactions.

“None of it makes sense,” Brigitte said. “I was standing about three feet away and saw him physically put the card into the machine … He did enter a PIN and then he was standing there waiting for it to be approved. I swear by the life of my mother, and I would swear on it in court.”

Bank fraud expert, Vanessa lafolla, was shocked that Chase went after the Loiks “in such a strenuous way.” She said despite what most banks say, no system is foolproof.

In this case, she said, “what you likely have is a spoofed card or an otherwise fraudulent card that has been created to specifically defraud merchants … there’s really no way for the merchants to protect themselves from something like that.”

The Loiks tried for months to resolve the issue themselves.  Vanessa said that there was nothing more the Loiks could have done to ensure the credit card transactions were legitimate. 

Once Go Public started to investigate Chase, the bank initially offered to return $5,000 as a “goodwill gesture,” because they understood “the challenges the chargebacks have caused.” 

After an interrogation from Go Public, Chase then returned all but $6,272, the amount of two of the June transactions with no explanation why.

CBC reported that “merchants say this is not uncommon; 14 per cent of surveyed Canadian businesses say they have faced credit card transaction disputes, according to a 2019 poll of more than 7,000 Canadian Federation of Independent Business (CFIB) members.”

Banks blame each other

Go Public spent months challenging Chase and Royal Bank, which had issued the credit card number used in the fraud. 

It was unclear why the Loiks were left to pay for it and who made that decision.

Chase blames RBC. In a letter dated Sept. 30, it told the Loiks there is nothing it can do because RBC decided the couple should take the loss.

But RBC said that Chase missed deadlines to submit evidence needed when the couple tried to get the decision reversed — so the Loiks’ dispute case died there.

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

Both of these steps would have helped the Loiks recoup their losses. Chase said in a letter to the Loiks it’s “industry standard” for businesses to pay for fraudulent transactions when the card information is entered manually. Go Public followed up on this and asked what industry standard the bank was referring to, but did not get an answer.

Chase told the Loiks they should have submitted “acceptable documentation” to support their dispute, including a signed receipt or an invoice. The Loiks had already provided both.

Insult to injury

Adding insult to injury, Brigitte highlights that businesses already pay “swipe fees” — up to two and a half per cent from every credit and debit card transaction.

A portion of these fee go to banks in return for accepting the risks involved — like fraud. Yet, banks and credit card companies force small businesses to shoulder all the risk and losses.

“They made hundreds and thousands of dollars in fees. They charged us from up until now and there’s no help.”

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

Based on anecdotal information from business owners, merchants lose disputes with the financial companies involved and even when they initially win, that often gets overturned. 

Pohlmann says merchants are often forced to pay in cases of fraud, even when they’ve followed all the rules set out by banks and credit card companies. This rule is present because the government allows the companies to make their own rules when deciding credit card disputes. 

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

The CFIB is currently seeking for new rules to force credit card providers to take the loss for fraud when merchants did everything they should have to verify a transaction.

Since the fall of 2020 and the rise of fraud cases during the pandemic, the federal government has been reviewing the voluntary Code of Conduct for the Credit and Debit Card Industry in Canada.

Finance Canada spokesperson, Marie-France Faucher, said the review will look at “potential ways to enhance the benefits of the Code for small and medium-sized businesses.”

Although it is unclear if and when these changes will be complete, it is unlikely that any change will be quick enough for the Loiks to recover the last $6,272 of their money.

Brigitte says she’s relieved they got most of it back, but says the system needs to change so this does not happen to other people.

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

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

Burnaby RCMP say “it’s an open investigation. Go Public tried tracking down the fraudster, but our calls and email went unanswered. We also went to the address he provided the Loiks, which ended up being a park.”

This article was originally sourced by