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False Claims Growing With Consumers, Visa and MasterCard say

Post Categories: Deceptive Marketing

Both Visa and MasterCard held events last week that touched on protections for consumers. MasterCard held a panel on consumer rights for goods and services bought online at Global Risk Leadership Conference in Albufeira, Portugal. Visa held an educational webinar through the Merchant Acquirers’ Committee (MAC) on the Global Brand Protection Program (GBPP). Two classes of consumer abuse were mentioned by both card schemes: deceptive marketing and binary options.


Deceptive marketing is making a comeback. Deceptive marketing, such as subscription billing and negative option billing, are hard to defend against. There are fewer hard and fast rules like there are with prohibited products like drugs and counterfeit. So card networks are following the patterns of consumer complaints to find culprits.


In Europe, consumer protection organizations are educating online buyers about “subscription traps.” The average losses are high, about €150 per incident. Men are more likely to be enticed by electronic sales, such as mobile devices, while women are duped by wrinkle creams and diet pills. But both genders have low awareness of their chargeback rights — as low as 10% in Sweden.


Fake celebrity endorsements have risen. One scam with wide exposure asserted Joanna Gaines, the US home improvement guru, was leaving her show Fixer Upper to focus on her anti-aging skin care business. The ads prompted consumers to click on free trial programs for subscription-based cosmetics. The ads became so widespread that her lawyers contacted card networks to choke off payments. Celebrity endorsements should be investigated during underwriting.


Binary options are hazardous, as are related instruments like forex options and cryptocurrency options. Binary options are fixed risk and fixed reward bets. For example, a consumer might bet $100 that a stock will close above $50 next week; if the stock closes at $60, the consumer “wins” the bet.


These are described as “alternative fraud,” or deception that happens after a consensual transaction, rather than the transaction itself being nonconsensual and fraudulent. According to the FBI, the perpetrators are supposed to be registered on the US Securities Exchange to trade with US customers, but in fact are unregistered criminals operating overseas.


They become fraudulent for the following reasons:

  1. The customer begins by funding his account. But winnings such as the $100 above are not credited to the customer account until matching funds are deposited. So the operator always has a positive $100 cashflow situation, even in a theoretical “run” whereby the customer were to win every bet. Since the customer doesn’t win every bet, the website retains even more cash.
  2. The customer is manipulated by false stock outcomes. The operator begins by creating false outcomes where the user wins initial bets. Then after they deposit more money, the platform manipulates results to create a false losing streak.
  3. The winning customer is allowed to cash out in return for providing personal information. But the information is used for identity theft and no cash is ever allowed out of the account.


Facts supporting chargebacks can be difficult for consumers to demonstrate, because consumers consented to the transactions to begin with.


So rather than being investment services, many binary options and other options platforms are really corrupt casinos. To address these problems, card networks are meeting with country regulators, such as those in Canada that have found nearly all binary options merchants to be illegitimate, and ensuring acquirers have validated proper registration and licensing to do business in markets where consumers reside.


G2’s Compass Score and Global Boarding products can protect you when you are onboarding dodgy merchants. Persistent Merchant Monitoring and Transaction Laundering Detection ensure your erstwhile low risk merchants don’t transform into high risk.


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