2% dispute rate?! That would get you shut down at every merchant account provider I've ever dealt with. In fact, it's usually 0.5% or 1% max. One major bank gave me 0.25% max. I've never seen an agreement that said 2% was ok.

That's a very serious fraud problem.

I've run an ecommerce store -- the chargeback rate was 0.1% (seriously, I calculated this from actual #s).

Nothing in this story (except maybe the customer service issues) would be out of the ordinary for any merchant account.

Edit: fixed chargeback rate