Hi. Just got a question from my debit card department, and I wanted to see if anyone could help me with it.

When we have a customer who is claiming fraud on their debit card, and the charge was run through the Visa network, if the merchant sends it back through we get documentation showing details about the transaction (showing the address was wrong, or the name was wrong, etc...), and we are able to send it back to the merchant through pre-arbitration. Normally the merchant won't send it back through again.

However, if the item was run on a pin based network (Pulse, Plus, etc...) we do not have the option for pre-arbitration if the merchant sends it back to us, and were wondering what other banks do in that case. Do you eat the charge, do you charge it back to the customer, or do you handle this on a case by case basis taking into consideration what documentation you are able to get about the transaction?
Hope that was not totally confusing and that someone can help me with it.

Your ability to recover funds via the chargeback process is not connected to your obligation to investigate under Reg E. Generally PIN based transactions cannot be chargeback for fraud so you are likely wasting money in processing fees by even trying. The merchant is not obligated to provide any information in response to a chargeback since a PIN was used. If you elect to investigate, you will be better served working with law enforcement or contacting the merchant directly to obtain video surveillance of the transaction.

You cannot deny the Reg E claim simply because a PIN was used. The card could have been skimmed and counterfeited resulting in a fraudulent PIN based purchase. If you suspect that the cardholder give the card & PIN to someone else and they exceeded the authority given (See Reg E 1005.2(m)), then you may have a basis to deny the claim. However, this information generally can only be obtained during an interview with the cardholder and the card holder admitting what they did.

If based on your investigation, you believe, but cannot demonstrate, that the cardholder did not safeguard the card & PIN, your best option is likely to pay the claim and then not issue a replacement card to this customer.

Brian,
The transaction that they were asking me about is actually an internet transaction (ebay) that was run through a pin based network. We have been seeing a few of those lately. Does that change anything about the way it would need to be handled, because even though it came through a pin based network, no pin number would have been used.

Thanks for your help, I really appreciate it a lot.

Thanks for clarifying. For those who do not know, we are talking about "Pinless debits." PIN networks are trying to compete with VISA/MC by routing bill payment transactions and some online purchase transactions through their networks. The merchants like it because the interchange fees tend to be lower.

I agree with the case by case route. If the merchant provides enough information for you to conclude they received the merchandise you may deny the claim. If it appears that the merchandise was sent to someone other than your customer, you may have to honor the Reg E claim and take the loss. You ability to recover funds via a chargeback regardless of network is not the determining factor in paying a Reg E claim. That is based on whether or not the customer made the purchase.

We are having a similar situation. What if the merchant doesn't provide any information? We use third-party processor for our debit cards, and they are the "go between" between the merchant and the transaction. We submit claims through our third party processor to obtain documentation, of which there often isn't any. Even if we aren't able to retrieve documentation from the merchant to make an informed decision, does the bank wind up eating the chargeback if it doesn't know who received the merchandise?

I'm bumping this post to see if anyone might know the answer to my question. Thank you.

Sorry to bump again. I thought I'd try one more time to see if anyone might be able to answer my question. We are often having these situations where we aren't able to obtain documentation from our third party processor. We've been eating the chargeback when we don't know who received the merchandise. Is anyone else having a similar situation? It doesn't look like we have any other option. Thank you.