Preparing for Expected Surge in Disputes During COVID-19

By: Paul Fenton, Vice President, Account Recovery, PSCU

The COVID-19 pandemic is affecting all sectors of the U.S. economy, which will likely result in a sharp rise in payment card chargebacks. Is your credit union prepared?

In an average year, the U.S. payments industry processes 25 million payment card disputes, according to Mercator. Given that U.S. consumers conduct about 70 billion card transactions a year, the number of card disputes is typically a small fraction of those transactions (0.0357%, to be precise). Since the COVID-19 outbreak started, consumers have been making fewer transactions on non-essentials. Under normal circumstances, logic suggests that fewer transactions would result in less payment card disputes. However, things are anything but normal right now. At PSCU, we have prepared for the influx of disputes, even with 85% of our staff transitioning to work from home.

Here are four reasons why credit unions can expect to see an increase (and in some categories, a dramatic increase) in disputes and resulting chargebacks.

  1. Some merchants may not be able to respond to consumers who attempt to address their dispute with them directly, as cardholders are instructed to do. Merchants may be stuck at home without access to their back-office payment systems, or are short-staffed due to quarantined employees who might normally handle customer service or order fulfillment. Many merchants have had to lay off staff, causing workloads to overflow.

  2. Shipping delays and products that suddenly become out of stock may cause online consumers to lose patience. Online merchants rely on distributors, who rely on shippers, who rely on suppliers, often in foreign countries, and any of them could face challenges beyond their control during the pandemic. Axios reported that nearly 75% of all U.S. companies have had their supply chains disrupted. When an item does not get delivered by the expected time, the consumer may want to dispute the purchase.

  3. Consumers are cancelling vacation plans for the foreseeable future and need refunds. Between stay-at-home orders and mandatory quarantines, vacation travel has ground to a halt. Many cost components of the planned vacation may be non-refundable – coming at a time when many would-be vacationers could use the refund now more than ever. In some instances, news outlets are advising passengers to file chargebacks against travel companies to reclaim money already invested in upcoming travel plans. Our partners at Ethoca have recognized this challenge and have compiled many of the travel merchants’ refund and cancellation policies on their website. We have added their link on our Member-Owner Risk Community Site under COVID-19.

  4. Scammers are taking advantage of coronavirus fears. Scammers are targeting consumers to con them into receiving bogus testing for the coronavirus and are demanding a credit card number to hold their place in line. These scammers are using fake websites to offer facemasks, gloves and even access to vaccines. The Federal Trade Commission (FTC) warns of fake charities that are purporting to help find a cure for the virus. In early March, Reuters reported that victims in the United Kingdom have lost more than £800,000 (+$1 million) to coronavirus-linked scams, and that amount is expected to grow exponentially. Once victims realize they’ve been scammed, they will want to seek a refund on their card right away.

In this challenging time, credit unions must brace for increasing contact center call volume and online dispute requests. For credit unions that trust PSCU for full-service dispute processing, know that we are ready for the expected increase. PSCU’s experienced dispute analysts process over 100,000 work cases annually to build member satisfaction and lower our credit union Owners’ exposure to losses.

Paul Fenton is vice president of Account Recovery at PSCU. In this role, Paul leads PSCU’s Disputes and Fraud Management teams. He is a member of Ethoca Advisory Group for Disputes and Authorizations and is also an Expert Contributor to the Visa Dispute Resolution Certification Program.