Once you deny the Reg E claim determining that no error occurred, your obligations under Reg E are done. However, if you elect to continue a claim deeper into the chargeback process because the cardholder has recovery rights under VISA/Mastercard rules, then you are obligated to follow their requirements.
Mastercard states in the rights and responsibilities section of the Chargeback Guide, "...when an issuer hasa billed a transaction to its cardholder's account for payment and then chooses to exercise a chargeback right, the issuer must credit the cardholder's account for the amount of the chargeback."
VISA has a similar rule for its chargeback process:
188.8.131.52 Attempt to Settle
Before initiating a Chargeback, the Issuer must attempt to honor the Transaction.
If the attempt fails and the Issuer has already billed the Transaction to the Cardholder, the Issuer must credit the Cardholder for the Chargeback amount.
An Issuer must credit its Cardholder's account for the amount in dispute, whether or not a Chargeback was initiated, if the dispute involves an Electronic Commerce Transaction that meets the conditions of any of the following Chargeback reason codes:
● 30 (Services not Provided or Merchandise Not Received)
● 41 (Cancelled Recurring Transaction)
● 53 (Not as Described)
● 83 (Fraud – Card-Absent Environment)
● 85 (Credit Not Processed)
In other words, VISA/Mastercard expect that you allow the customer to keep the money while you investigate, even if the investigation is not part of a Reg E investigation. I am curious about the statement, "The customer decided to send the dispute to arbitration." The bank is the gatekeeper to the chargeback and arbitration process. You get to decide whether the cardholder provides sufficient information to continue to arbitration. Considering the filing and decision fees are $150 and $250 respectively, (paid by the losing party) don't let you customer make expensive decisions for the bank unless you are sure you have a case you will win.
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