Restaurants Dependent on Takeout Orders Seeing Rise in Credit Card Chargeback Fraud

Hands making a fast food delivery
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Takeout and delivery orders have offered many restaurants a financial lifeline during the coronavirus lockdown. But some dining establishments are falling prey to a new kind of dine and dash in which customers dispute legitimate credit card charges related to an order, forcing the restaurant to foot the entire bill.

The takeout scam has become so prevalent that it is forcing some restaurants out of business, CBSLA reported. Called “chargeback fraud,” the restaurant variety is frequently happening through a delivery service, like Grubhub or UberEats, which already take a percentage out of the restaurant’s profit in the form of service fees.

To pull off the scam, a customer will receive the food order but then dispute the charge with his credit card company, which issues a refund. In the end, the restaurant takes a loss on the whole order.

The scam is spreading at a time when many restaurants are already hanging by a thread as Democrat-controlled cities and states continue to restrict in-person dining, forcing restaurants to rely on takeout and delivery to stay afloat.

CBSLA reported that a Los Angeles restaurant in the Fairfax district recently fell victim to a scam order for $700 worth of food. The customer picked up the order but a week later,  disputed the credit card charge. This happened repeatedly with different customers until the owner decided to close down for good.

“I just felt so incredibly helpless and frustrated. We just couldn’t keep running our business like this,” Yoonjin Hwang, owner and chef of the Korean fusion cafe Spoon by H, told the news channel.

Customers saw her struggles and reportedly raised more than $60,000 on a GoFundMe page.

Credit card companies are required by law to investigate fraudulent charges and to issue a refund to the cardholder if it concludes that a charge is phony.  Chargeback scammers game the system knowing that card companies must often rely on the cardholder’s word.

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