Three years ago, Matt Penney and Alana Cosgrove turned their dream of owning a family farm into reality in Hudson.
But this spring, the co-owners of Pengrove Farms say they fell victim to an alleged fraud scheme that left them out roughly $20,000, or about $27,000 worth of products at retail value. Now, they want better protections for small businesses.
“We were contacted by what we thought was a catering company looking to place wholesale orders for their events. So we did the first order with them by taking a 50 per cent deposit one day. Then the following day, we took the remainder of the payment and after that, they came to make up their first order. Everything went fine. Everything was approved and no issues with that one,” said Penney.
Over time, the owners say they developed a sense of trust with the customer.
Casgrove added, “I’d hear Matt on the phone with them cracking jokes, and there was a rapport that was building.”
The first order appeared to go smoothly. The customer arranged for delivery drivers to collect the products, a common practice in the industry. But when a second order was placed the following week, problems began to emerge. Part of the payment fell through, and more than six weeks afterward, the farm was notified by its payment processor that the charges were being disputed.
“The issue that we ran into is that it took Square so long to report this as a fraud that our security cameras wiped the footage already,” said Casgrove.
Penney added, “What we’ve learned, though, and what a lot of business owners aren’t aware of, is that pretty much any fraud committed against your business through the POS agreements that Square, the payment system operator, has in place, you’re not protected. Most people assume that, as a consumer, you’re protected under your credit card and that they’ll pay you back, but that’s not fully true.”
In a statement to CityNews, a Square spokesperson said, “Fraudsters exploiting small businesses is a serious problem and causes real harm. When a seller has been the victim of buyer fraud, we work with them directly, case by case.” The company said chargebacks are initiated by cardholders through their banks and that card networks, not Square, determine the outcome of disputes.
The business owners found themselves with no products, no money, and no proof to launch an investigation.
“What is common and it’s actually quite sophisticated and targeted. What these fraudsters will do is they will build a relationship, they will create a fake company or pretend to be a company. They might even use AI to generate fake documents, impose information on ID cards, recreate fake credit cards,” said Ritesh Kotak,
“And what happens is it goes through. Money may even go into your bank account. They will come and pick up the product as well. And then you’ll find out a few weeks later that it was a fraudulent transaction and a chargeback process has been commenced where the payment processor will actually freeze the account and remove that money out of your account. So now you’re out the product, you’re also out additional money as well.”
Vincent Pâquet, Quebec senior policy analyst with Canadian Federation of Independent Business, says, “Chargeback fraud is on the rise, not only in Quebec, but across all of Canada. So we hear back from our members saying they’ve been a victim of this type of fraud.”
According to the Canadian Federation of Independent Business, agriculture ranked third among sectors most affected by chargeback fraud in 2021. Arts, recreation and information businesses were hit the hardest at 18 per cent, followed by finance and insurance at 17 per cent. Agriculture accounted for 16 per cent.
The farm is now recovering thanks in part to community support. But the owners say more needs to be done to protect small businesses from chargebacks and credit card fraud.
“I think on the political side that there should be a lot more legislation to protect small business owners. The payment system companies seem to be able to write their own rules and regulations with zero or little government oversight from the provinces and at the federal level,” said Penney.
Casgrove added, “We are pushing, and we do think that it is important to bring this to a higher level to start protecting businesses in Quebec because this type of fraud is rampant.”
Add CityNews Montreal as a trusted source on Google to see more local stories from us.
