During a review of our Reg E dispute process handling, it was found that once the disputed entry went through our processor and returned with no chargeback rights, within the 45 day (or 90 for POS) period the operations person was not notifying the customer within 3 days. They understood they should wait until closer to the 45 day expiration date because of their experience with some dispute credits being reversed after the initiating vendor provided the sales slip or other documentation. Either way, the bank has been absorbing the expense in this case. The question was if they could wait longer than the 3 day period to notify the customer the dispute was resolved, an error did occur (probably fraudulent card)and the provisional credit was final?

Once they found that the bank had no chargeback rights, did the investigation cease or did they continue to work the case? Based your your description of the course of events it sounds like you have ceased your investigation and should be providing notice at that time.

There is no need to wait for a merchant credit once you have concluded your investigation. If the merchant provides credit after you have closed your investigation, you can simply reverse the duplicate credit.

Revoke Duplicate Credit

Taking back Final Credit

Debit Card Dispute Right to Take Credit Back

Once they are notified there are no chargeback rights, they typically close the investigation and send the final resolution letter. What happened recently was a credit was received from the processor and the letter sent to customer, finalzing the provisional credit. Two weeks later a reversal of the credit came in based on the vendor's claim they had the card at the POS, and our credit was reversed. Based on that experience, they decided to not send the "final" letter until they got closer to the 45 day window. That seems out of step with 1005.11(c)'s 3 day notification time.

Brian, to clarify... there wasn't a direct refund to the customer in my example. Just a reversal of the credit to the bank through a ledger adjustment settlement acct.

Thanks for the help!

Ok...to help you understand VISA/MasterCard's chargeback process.

When the bank files a chargeback, it receives provisional credit from the merchant. The merchant has 45 days from the date of the chargeback to provide representment docuements. Your staff should not be closing their investigation if they do not have enough information to complete their investigation. In your example, it is appropriate to wait for documentation from the merchant. (Suppose you provide final credit upon receipt of credit from your processor only to find out a month later that the merchant provided a copy of a sales receipt containing your customer's signature. Now you have no way to reverse the credit even though you have determined that the transaction was legit.)

So, if I'm understanding you correctly, there is a distinction made by the processor when they provide the credit....either it is closed/final or provisional pending the outcome....right? If we receive a notice of no chargeback rights, however, that should be final unless we have additional information that may challenge the vendor. Otherwise, once that notification is received the final resolution letter should be sent to the customer within 3 business days.

Correct, receiving credit from the processor does not = case closed.

If you have no chargeback rights you have 3 choices:

1. Close the investigation and notify the customer within 3 business days.
2. Keep the investigation open and attempt to contact the merchant directly to obtain information about the transaction.
3. Keep the investigation open and file a retreival request with VISA/MasterCard to compel the merchant to produce documentation regarding the authorization (i.e. copy of the sales receipt.)

Again, thanks for the assistance.

OK, Brian...I need some help understanding this process.....In reviewing Reg E claims, I note that we do close investigations very timely after receiving notice that we have no chargeback rights....however, most of the other cases are kept open the full 90 days (when it meets the 90 day time requirement)...it appears on the processor report that the processor closed the case maybe a week earlier....but this report wasn't printed until close to the 90th day....

Am I understanding correctly that we can keep a claim open while we are waiting for chargeback information from the processor....all the way up until they close the case....provided it does not exceed the 90 day timeframe?

I want to make sure that I understand when cases need to be closed.....

Also, do you know why we would be waiting to print the report if the report states closed a week earlier? I don't know if maybe there is some type of batch process for printing these reports....

You can keep a claim open up to the 90 days while waiting to hear from your processor on a merchant's response (or lack of merchant's response).

As for when your processor reports are printed, this would be an internal procedure based on the workflow of the dispute resolution team.

As always, Brian...Thanks so much.......

Can a financial institution require a customer to try to resolve a non-fraud dispute with the merchant before filing a claim/dispute.

If the transaction is covered under Regulation E - no, you cannot require this.

Your card customer = your problem.

Brian,

If you receive chargeback, do you have to send final letter or can you wait til closer to the 90 days to make sure they don't reverse chargeback?

A merchant has 45 days after a chargeback is processed to provide representment documents. I would not consider my investigation closed until I have obtained all of the potential documents that could aid in my investigation. Many posters on BOL have closed investigation as soon as they receive credit from their card processors only to find out a month later that the charge was authorized and they could not revoke final credit.

PS, welcome to BOL.

Brian: First, let me acknowledge that you "da man" when it comes to Reg E. However, I'd like to play devil's advocate about your last post. Reg E says you are to investigate promptly and correct errors with 1 business day after deterring that an error occurred. I know you know this, but here's the citation:

A financial institution shall investigate promptly and, except as otherwise provided in this paragraph, shall determine whether an error occurred within 10 business days of receiving a notice of error. The institution shall report the results to the consumer within three business days after completing its investigation. The institution shall correct the error within one business day after determining that an error occurred. [§1005.11(c)(1)]

and §1005.11(c)(2):
If the financial institution is unable to complete its investigation within 10 business days, the institution may take up to 45 days from receipt of a notice of error to investigate and determine whether an error occurred, provided the institution does the following:

Corrects the error, if any, within one business day after determining that an error occurred; and,

Reports the results to the consumer within three business days after completing its investigation (including, if applicable, notice that a provisional credit has been made final).

I've seen regulatory scrutiny (and agree) that a bank can't just leave the investigation open for the maximum time limit (45 or 90 days) just in case. How do you balance this regulatory requirement and the "let's leave it open in case they revoke credit" (which may be prudent) issue?

Really what is at issue here is, "When is the investigation completed?" When an institution files a chargeback, it does receive a credit from its card processor. However, receiving credit from the card processor does not provide me with information to determine whether or not an EFT error occurred. Since VISA/MasterCard operating rules allow a merchant up to 45 days from the chargeback date to provide information to respond to a chargeback I do not considered my investigation complete when there is still information of which I may avail myself. To avoid regulatory scrutiny, I recommend documenting the chargeback processes and timeframes into my investigation procedures. These should include monitoring of daily reports my card processor provides which will advise me when the merchant timeframe for responding has past. If the merchant does not respond with any information then I will conclude that an error did occur and finalize the provisional credit within one business day of that time elapsing and notify the cardholder within three business days that their provisional credit is final.

For some claims, I do not have chargeback rights (PIN-based, card present signature based, Verified by VISA/Mastercard SecureCode, etc.) If I cannot use the chargeback process to investigate, then I have to either decide to pay the claim and close the investigation immediately since I am not taking any steps to investigate, or try alternatives to filing chargebacks such as requesting copies of video from other banks/merchants, reviewing common purchase patterns and geography of transactions, etc. I cannot twiddle my thumbs doing nothing.

Examiners that do not understand the chargeback process may accuse an institution of improperly delaying the completion of an investigation. My response to that would be, "Yes, I'm waiting. The regulation permits me this timeframe. VISA/MasterCard permit their merchant time to produce documentation. My investigation is not complete until I receive the information I need to make a determination whether or not an error occurred." I would support my position citing the staff interpretations to 1005.11(c) relating to errors involving POS.

3. POS transfers. When a consumer alleges an error involving a transfer to a merchant via a POS terminal, the institution must verify the information previously transmitted when executing the transfer. For example, the financial institution may request a copy of the sales receipt to verify that the amount of the transfer correctly corresponds to the amount of the consumer's purchase.

"I'm sorry, Mr. Examiner. I requested a copy of the receipt just like the interpretations suggest, and I am not closing my investigation until either I receive it and can make a decision based on the information, or the time the merchant has to produce it passes."

Well done!

Thanks Brian. This quote is the perfect answer.

We run into a lot of banks that simply aren't taking any steps to investigate, but want to keep it open "just in case". That was my point.

So let me ask this:
We have given provisional to a customer who revoked an auto debit correctly, we have received credit from the processor however we believe they are going to pull it back. Am I correct that once the 90 days arrives we have to make the provisional final even if we have a feeling that the credit will be pulled back, and the charge back will become the bank's loss?

Correct, on all points.

Thanks John!

I first want to disclose that I understand the regulations requirements of investigating promptly and I also agree that if a financial institution is not going to continue investigating a claim, that the financial institution should not wait the full 45 days to complete the investigation.

The regulation requires provisional credit if the investigation is going to take longer then 10 days. If provisional credit has been provided, what consumer harm has been created by waiting to the 45th day to finalize the claim?

This question has been brought up and I am trying to provide a reasonable answer other than, we must consider the claim complete if no further investigation is going to be completed because the law requires it. I believe there are scenarios where consumer harm could be created by waiting to complete the investigation, such as when you do not provide provisional credit because the customer did not provide the error notice in writing. In the specific scenario where the investigation has taken 20 days and provisional credit was provided on the 10th day, what consumer harm is there by waiting until the 45th day?

What hard is there to wait? If you give me provisional credit and tell me it's provisional, I have to wonder if you'll take the money back. Therefore, I may not spend it because it's not 100% mine. I'm waiting for a final answer. If you wait until the maximum time (45/90 days) even though there's no ongoing investigation, my wait is increased beyond what is necessary.

Congrats, Brandon D, on your first post in our Discussion Forums.

As for David Dickinson's observation, I have to support it. The customer has the right to know his credit is final and his claim is resolved as promptly as you can get it taken care of, within the 45/90 day absolute limits.

In the case where there is a REG E dispute being made on a joint account where each owner has their own personal Debit Card. If a joint owner disputes a transaction which appears on their account, but the transaction was not performed with their Debit card but rather the Joint Owners. How do we best handle this? Can we close the case stating that No Error occurred because the joint owner whose card was used is not claiming that there was an error? Can we tell them that the joint owner would have to dispute the transaction?

No to both questions.

Reg E permits either owner to assert that an electronic funds transfer error occurred regardless of any VISA/Mastercard requirements to obtain a signed letter from the cardholder.

You can either attempt to investigate outside of the chargeback process by contacting the merchant directly or attempting a retrieval request (to which the merchant may or may not respond) or try contacting the cardholder and requesting that they provide the requested disputed letter to utilize the chargeback process (if available.)

When a bank receives credit from the merchant in response to a fraud claim - has given provisional credit to the customer - and the 45/90 days aren't up and the bank has no way of knowing that the merchant will represent the transaction - the bank has not closed the complaint and the item represents. What is the best way to handle this? Is this considered the same complaint? Should the bank close the original complaint within 3 days when the bank receives credit from merchant and open a new complaint when the transaction represents?

If we receive verbal notification from customer, and we advise them that we require written notification - I understand that we must begin our investigation with or without the written notification and that absent the written notification we do not have to provide provisional credit within the 10 business days. We would continue our investigation without the written notification - in this case are we not required to provide provisional credit if we can not complete the investigation within 10 business days? What happens If we receive the written notification on the 18th day from when we were first notified verbally are we then required to immediately provide provisional credit?

No. If the consumer doesn't provide the requested written confirmation within 10 business days of making the oral claim, the provisional credit requirement is gone, period.

To answer Happy's question, no it is still the same claim.

VISA/Mastercard both state that a merchant has 45 days from the chargeback date to represent. Ask your card processor if they have reports to track open chargebacks so that you know when the timeframe for a representment has past and you can safely close an investigation.

If you close the claim before the merchant represents and the documentation proves that no error occurred, you cannot go back to recover the provisional credit since it has been finalized. Instead, keep the claim open while waiting for representment documents and use the representment documents to determine whether or not an error occurred. We may determine that an error occurred and close the investigation under Reg E, but still need additional information from the customer (updated letter for example) to file pre-arbitration or arbitration chargeback. These additional VISA/MC processes are designed to help you recover the funds for the bank, but are separate from your obligation to reimburse the customer if you determine that an error occurred.

I want to be sure I am stating this correctly.
With respect to REG E errors.
Lets say a customer has had numerous unauthorized POS transactions on their account since January and they are just now coming to file a dispute in May. The unauthorized POS transactions are from various Different Merchants and occurred over several months:
January 10th, 15th, 30th,
Feb 8th, 28th,
March 6th,
April 10th, 12th, 20th 30th.
An account statement was mailed to them at the end of each month.
On May 19th the customer notices their balance is less than expected and now wants to file a REG E claim.
which transactions would we have to resolve within the REG E timeframes?

All of January, February and the March 6th transaction. Those done in April are the responsibility of the consumer.

Agreed, unless the card was lost or stolen and the customer realized it earlier than the end of March. But your description suggests the card was in the cardholder's hands continuously, so it appears the bank pays for the unauthorized EFTs in Jan, Feb and Mar.

In the scenario the customer is responsible for the unauthorized transaction done in April, are we then required to cover the April transactions under MasterCard zero liability? What does MasterCard consider timely notification? Wondering when you will be holding another MasterCard / Reg E webinar?

Would you be able to tell me if there is a letter library where we can get the verbiage for denial letters within the Reg E guidelines?

There isn't a model form letter, so the language is really up to you. That said, if a customer submits a dispute where you provide provisional credit and you determine an error didn't occur and wish to revoke provisional credit, the following outlines your notification responsibilities:

"(d) Procedures if financial institution determines no error or different error occurred. In addition to following the procedures specified in paragraph (c) of this section, the financial institution shall follow the procedures set forth in this paragraph (d) if it determines that no error occurred or that an error occurred in a manner or amount different from that described by the consumer:

(1) Written explanation. The institution's report of the results of its investigation shall include a written explanation of the institution's findings and shall note the consumer's right to request the documents that the institution relied on in making its determination. Upon request, the institution shall promptly provide copies of the documents.

(2) Debiting provisional credit. Upon debiting a provisionally credited amount, the financial institution shall:

(i) Notify the consumer of the date and amount of the debiting;

(ii) Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited."

BOL Guru Andy Zavonia is giving a Reg E webinar on Tuesday March 19th. I know that he includes sample letters as part of his materials.

The A - Z of Reg E

We have sample letters available for free. They are called "EFT Error Sample Letters" and you can download them by going to:
https://www.bankerscompliance.com
at the top, click on "Free Downloads". They are in the "Deposit Operations Tools" folder.