Overpayment Scam Tactics & How to Avoid Them

gloved hand in black typing on keyboard alluding on fraud

We’ve noticed a recent resurgence of the overpayment scam, and if your business advertises its products or services online, you could be a target.

What Is An Overpayment Scam?

Also referred to as a cash forwarding, or cash advance scam, this con involves fraudsters paying for a purchase with a stolen credit card, then requesting that you either forward some of the funds to another third-party or refund the purchase to a different form of payment.

How Does It Work?

Fraudsters will contact a business, usually via text or email, and inquire about making a large purchase (e.g. for an event). The large purchase is designed to entice the business to overlook any potential red flags so the fraudster can pay using a stolen credit card. After the business processes the transaction, the fraudster will call claiming that whatever they had planned has been canceled and ask for a full or partial refund. 

The key to this scam is fraudsters asking to have refunds sent to a different credit card or issued as a check. Because the original purchase was paid for with a stolen card, a chargeback will likely be filed leaving the business out of pocket for the refunded money sent to the fraudster, as well as the money they will have to pay back to the owner of the stolen credit card by way of a chargeback. It’s a win-win for fraudsters, but a lose-lose for business owners.

These types of scams often use online classified services like Thumbtack or Kijiji to target smaller service-based businesses including event planners, contractors, and dance instructors who they hope will be excited by the prospect of a big payment.

Scam Tactics

Fraudsters in these cases will often rely on fabricated emotional stories that appeal to your human empathy, so you are more inclined to compromise your usual business practices.

A common excuse fraudsters fall back on is being in the hospital but urgently needing assistance to pay for a service. For example, if you owned a landscaping company, they might say they are in the hospital, but their home is up for sale, and they need to have some landscaping completed or risk losing out on an offer. If your services cost $1,000, they might say they will send $3,000, then ask that you forward the extra $2,000 to another service provider also working on the house but who doesn’t accept credit cards.

Claiming they are stuck in the hospital gives them a reason why they are unable to pay the other company themselves and why they cannot meet you in-person. They will use a stolen credit card for the initial $3,000 payment and the $2,000 you forward back will go directly into the scammer’s bank account. Again, business owners lose on refunding the fraudster, as well as in the form of a chargeback to the stolen card owner.

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Is An Overpayment Scam The Same As A Refund Scam?

The overpayment scam is synonymous with the refund scam. At most, they are variations on a theme whereby fraudsters employ the simple tactics of using stolen credit cards to have funds funnelled to their personal credit cards or bank accounts.

Where To Report Overpayment Fraud

If you or someone you know is or was the victim of an overpayment scam (or another type of scam) you should report it to your local government authority or police department. Reporting fraud helps local authorities identify trends in order to track down and prosecute scammers. In Canada, you can report fraud to the Canadian Anti-Fraud Centre (CAFC), and in the US, report a scam to your State Consumer Protection Office.

Best Practices to Avoid Being Scammed

  • Be Wary of Customers Who Offer to Pay More Than You’re Asking
    Customers typically want to pay less, so if a customer is offering to send more money than you’re asking for, it should be considered a red flag.
  • Never Forward Money to a Third-Party
    If a customer asks you to forward part of their payment to a third-party because they overpaid for a purchase, it’s best to decline the whole transaction and refund the money directly to the customer using the same payment method and details as the original transaction.
  • Refuse Any Overpayments You Receive
    Only process credit card payments for the correct purchase amount. If a customer makes the payment using a check, only deposit it if it’s for the correct amount.
  • Only Refund Purchases onto the Original Card Used
    If a customer pays for a purchase using a credit card, the refund should only be returned to the original card used for the transaction. The card brands dictate that, despite some rare exceptions, no cash refunds should be given for a credit card purchase and any refunds given for credit transactions must be refunded to the same card that was used for the original purchase.
  • Confirm the Customer’s Information
    Before you proceed with a payment, confirm the customer’s name, payment information, phone number, and billing address. You can use the AVS to confirm that the address given during the checkout process matches the address on file for the credit card. If the address and phone number are from different areas, or if they don’t match the payment information, you can request additional information to confirm the order or choose to decline the transaction altogether.
  • Don’t Rush Through a Large Purchase
    Don’t overlook red flags or rush through processing a payment just because a purchase is significantly larger than your usual transactions. 
  • Don’t Switch Payment Processors or Sign Up for a New Service to Make a Sale
    If a customer asks you to use a specific payment provider or service to process their payment, it is most likely an indication that they are trying to do something fraudulent and they’ve identified a certain service or processor that they are able to exploit.
  • Be Wary of Customers Offering to Pay Your Transactions Fees
    A customer who seems overly knowledgeable about credit card processing or who offers to pay transaction fees for you should be a big red flag. There is no reason for a customer to offer to pay the credit card processing fees.

Final Thoughts

Stay on the lookout for the warning signs listed above; knowing how to identify potentially troublesome transactions can help you spot red flags faster, saving your business time and money. When in doubt, it’s best to fall back to the general rule that if a purchase or transaction seems too good to be true, it probably is. Now, any time someone tries to overpay your business, you’ll now see this scam tactic for what it truly is and be able to stop it in its tracks.

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