Customer made a purchase online and used her paypal account to pay for the item. She has not received the merchandise and wants to dispute the charge. Is this covered under Reg E?

Please tell me if I understand the situation correctly: It sounds like she used her debit card to transfer funds from her checking account to her Paypal account, followed by the actual purchase, which was paid from the Paypal account.

If this is the case, then I would say the portion of the transaction that is in your jurisdiction is the transfer to Paypal, which was both authorized and completed as authorized. As such, the customer's dispute is not with you.

Customer should log in to their PayPal account. PayPal has an excellent dispute process.

I agree with VT Banker! I had a dispute once and it was handled excellently.

Thanks, I did refer her to paypal.

Never, never use a debit card on the Internet. Your customer's dispute is not with you.!

Are you saying if you use your debit card on the internet, a customer can't dispute the transaction through the bank?

no, Fraudman is saying that the customer DID authorize the transaction from PayPal. the customer wants to reverse the transaction on his PayPal account. therefore the dispute is with PayPal.

his main point is that using your debit card online carries a different type of risk. those who have access to it have access to your bank account, which you need to pay the phone bill and mortgage. whereas unauthorized charges on credit cards generally don't carry the threat of disconnection or foreclosure.

I disagree. MasterCard and VISA, whichever association you issue through provide dispute resolution rules and chargebacks to make their products safer to use. If the card was used on the internet it was not a debit transaction as no pin number was used and the transaction can qualify for chargeback. The bank should chargeback the transaction for merchandise/services not provided and make the merchant answer to the chargeback. If the response is unacceptable, then the bank recovers the money and both the customer and bank are happy. Yes, the customer agreed to the transaction, but didn't get what she paid for and probably only used pay pal as that was a requirement by the seller. Once pay pal is charged back, then they will pull the money from the seller's account.

You may be confusing a debit card transaction and a credit card transaction. Reg. E doesn't care about satisfaction with a purchased product or service as Reg. Z would and if the transaction wasn't processed through a MC/Visa system the debit card zero liability rules wouldn't have to apply.

As published on this site by Andy Z in regards to Check Card Disputes:EFT or Credit Card Rules dated 2/3/03 - "If it was done without accessing a line of credit (which would be a credit issue) and with a PIN, it is likely a Reg E error resolution issue. If it was done without a PIN, the VISA (or MasterCard as applicable) error resolution ruleswould apply." Reg Z would have nothing to do with the transactions, but since the card was used over the internet and without PIN, the associations provide protection for the consumer to use their product.

But the customer is not disputing that the transaction was unauthorized. She initiated it and paid PayPal. PayPal in turn paid the seller. She needs to get her money back through PayPal's dispute process. As such, she didn't actually buy goods, she bought a service. The service was conducted. The bank is out of the loop.

I agree with all points above; the dispute is with paypal, not the bank.

In addition, paypal allows the customer to refuse the charges if they have not received the goods. An interesting flaw in this policy has recently come up in the Online Gaming World. A customer spent $3,000 USD to purchase items in an online game. The seller of the goods delivered the items to the user, and assumed the transaction would go through fine. The customer then refused the charges saying they did not receive the goods, leaving the seller out $3,000. Since there is no proof of purchase, the seller cannot dispute the claim the customer made of not receiving goods. Interestingly enough, the customer came out and stated that he ripped the seller off to "teach him a lesson".

So, if the customer has not received anything, they can refuse the paypal transaction and get their money back.

A dispute doesn't need to be an unauthorized charge. What do you do for customers that make an order over the Internet and the merchandise was defective or never received. Your customer tries to fix through the merchant, but doesn't get any where so are you going to tell them sorry you lose you made the charge. Part of the protection of using a MasterCard or Visa branded product (debit or credit) is these types of dispute resolutions and chargebacks to protect your customer. Provide a provisional credit, do your investigation to include one of the chargebacks allowed through the association you issue through.

Again, don't confuse Reg. E which doesn't care if the consumer is satisfied, with Reg. Z which does. And while debit cards with the V/MC logo can fall under different rules according to contract, if the transaction wasn't through their network those rules don't apply. The original post doesn't refer to a branded debit card. The bank is not obligated here, based on the facts presented.