We have a customer who filed an unauthorized dispute. Customer filed a police reported and pressed charges. We have knowledge that defendant in this case already started paying restitution to the courts and the customer. Is it okay to let customer know that we will not be paying out this dispute since she is already getting back her funds from the courts?

Not sure. How was the customer able to get the court to order restitution to the customer when they did not suffer the loss? They actually had no cause of action and they actually stepped into the place of the bank in any such settlement agreement. The restitution should be going to the bank, which did suffer the loss. I think someone fibbed to the judge and you should ask your attorney as to how you should proceed to get the restitution headed the bank's direction.

The customer is guilty of "unjust enrichment". They cannot collect twice and I doubt the judge will be too pleased with them.

I'm confused as the bank says "Is it okay to let customer know that we will not be paying out this dispute" which tells me this is likely within the first month since the claim hasn't been finalized.

I assume the defendant offered payment as an enticement for leniency. The wheels of justice don't generally go that fast.

I'd want to CYA and "verify" that the consumer is happy recovering funds in this way and opts to withdraw their claim. If they don't do this, I would say you must pay the claim and notify the court that you are the loser on this and that future payments go yo the bank. In short, it will cost a lot more to administer this claim than most others.