I apologize in advance for this lengthy post, but I want to make sure I get this all explained correctly.

A business customer of ours (an LLC) is claiming that a vendor she's purchased goods from has stolen her debit card information and she wants us to refund two charges on her account. The background of this whole thing is where it gets tricky.

In November 2010 she placed an order with an upscale toy manufacturer for goods for her store. The total invoice (which we have a copy of) was $4500+ for all this product. Even though the terms listed on the invoice state that the final, in-full payment would be due by April 2nd 2011, she claims that she had a verbal agreement with the merchant that she would pay in installments by check over that period of time. The contact at the merchant (let's call him John for the sake of clarity and the business owner we'll call Sally) states that Sally gave him her debit card number at the offset sort of like how hotels require a debit/credit card when reserving a room. He states there is no way he'd have ever sent her all of the product without some level of assurance of payment, and agreed that he was going to let her pay in check payments.

The first check was written on March 19th, 2011. It was for $500. The second was written on September 30, 2011. It was for $150. No other checks have cleared her account to this merchant. Believing he had the right of offset he debited her account with her debit card number on December 29th 2011 for $707.99 and on January 3rd for $500.00. These two charges are what Sally is disputing. She is claiming that she never gave him her debit card number and he's "stolen" it.

When she initially called John to dispute the charges he offered to send her shipping labels free of charge to return all the product in she'd received (and she did receive ALL items on the invoice), she refused saying she needed the product for her store. She threw the word 'fraud' at him so he said, "Take it up with your bank."

Because she's a business, not a consumer, Reg E doesn't apply. Because she HAS received goods or services, this isn't a fraudulent transaction.

Our belief is that this needs to be between Sally and her merchant, not Sally and our bank or the merchant and our bank. She has requested our "response" in writing because she plans to "involve the FDIC". We have requested that she send her request in writing, so that when we respond in kind we are replying to something "real" (not just a verbal request).

Is there suggested verbiage for such an incident? What I would like to say is clearly not appropriate or professional.

I would love to hear from anyone who's dealt with a situation like this; it's my belief that the customer is 100% in the wrong on this and is desperately flailing due to her business slowly going under (which it is).

Look to your debit card agreement with this customer. That should guide your actions and I would quote customer liability section in your response. Now would be a good time for you to get your attorney involved.

I agree that the situation you describe would not be considered a fraudulent transaction and the dispute is between the merchant and the cardholder.

You can simply state that you have investigated your cardholder's claim of a fraudulent transaction, examined the invoice of the goods purchased and determined that no error occurred as your cardholder received benefit for the disputed transactions and therefore not subject to the Zero Liability protections in the cardholder agreement. You can state the bank's position that this is a contractual dispute between a vendor and a client and that the bank has no involvement.

When I had a situation like this, the cardholder went so far as to forge a letter from the company apologizing for the charges and promising a refund. I actually filed a chargeback based on the letter and the merchant responding by demonstrating how the "letterhead" had been photocopied from an envelope, the name of the company was not spelled correctly, and a host of other inconsistancies. After I denied the claim, the client then called the vendor pretending to be the police and threatening the vendor with arrest if they did not provide a refund...and so on.

You may not be able to prevent your client from filing a complaint with your regulator, so just be sure to document your research and communication so you can demonstrate that you handled the situation in good faith.

Brian, your customer seems to be of the same level of intelligence as ours...

Thank you both for your responses; senior management has been in the loop and supports the decision, and our account agreements clearly state that we hold no liability in this situation. I await her written request on pins and needles!

This may also be a good time to strongly suggest she move her banking relationship elsewhere, like in the next 'X' number of days, as it sounds like she is quickly becoming a huge expense of time and babysitting.