In all my years of addressing Regulation E error claims, I haven't run across this situation.

A bank takes a POS dispute for a merchant transaction that took place in Canada. The merchant returns the funds, but the exchange rate has changed since the date of the transaction, so the amount refunded is $3.00 more than cardholder was originally charged. What should we do with the extra $3.00?

Would your answer change if the exchange rate went the other way, and the refund was $3.00 LESS than the amount of the original transaction?

Would your answer depend in any way upon the reason for the claim (for example, a claim that the transaction wasn't authorized vs. a claim that the merchant had agreed on a refund and had not yet sent the funds)?

Does Visa or MasterCard offer guidance on handling such interesting problems?

Interesting indeed; an interesting headache I would pass the error in their favor, and let them know it was a highly irregular outcome. Had a similar situation where the merchant (dispute) refunded more than the original purchase. Contacted the merchant and they advised us to pass the gain on to our member (was only $1.50 or so). Accounting was none to happy with that answer.

Just be glad it wasn't in Japanese Yen, they would have only gotten $.90 on a dollar based on the exchange rate over the last couple of weeks.

I agree with allowing the cardholder to keep the extra funds. However, if the situation is reversed, I do not believe that Reg E will permit the cardholder to be penalized by a negative shift in an exchange rate on a transaction that should have never posted to their account in the first place. In the event that the refund is short, I (the bank) make up the difference.

Also, V/MC charges a cross border transaction fee to the cardholder on all international transctions. This fee is not included in a merchant rebate so the bank must reimburse the cardholder for these fees as well.

We have taken Brian's approach the one time it has happened here (thankfully, the refund was more than the charges). In addition, we don't charge the cross-border fee to our customers to begin with, so we don't have to worry about refunding that charge.

I think a case could be made that the bank make the consumer whole and show the overage as misc. income. In theory that would help offset losses when the rate change is not favorable.

The consumer can't complain because you didn't give them more than they lost.