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Yeah, it seems like the site's processor should have noticed this one site sending thousands of $1 charges and refunds in a small window much more easily than the site recognizing it was being done. The processor has much more to loose multiplied across all customers making it worth their time

In a perfect world sure but in the real world if a processor catches something they will disable your processing and freeze any funds while making it a nightmare to remedy, so you really want them doing as little as possible.

They do, but they’re also just as aware that you could be the fraudster. So they put the punishment where it’s optimal for them. You are not inside their trust space.