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#2159881 - 01/09/18 10:11 PM Reg. Claim on OD Closed/Charged Off Account
Compliance Geek Offline
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Joined: Jul 2017
Posts: 10
Scenario:

Consumer account was closed/charged off and sent to collection agency. Customer later files a Reg. E Claim on transaction that had occurred prior to the account closing. Claim of error is found to be valid and funds are recouped. The customer has no other accounts here and has no active and open accounts.

Typically what would happen when the account is closed and there is NOT an issue of a charged off account, the bank sends the customer their money via cashiers check with the claim closure letter. But in this scenario, the account was charged off and sent to collections and the customer is indebted to the bank/collection agency.

Does the bank have the right to offset a prior charge off with these funds? If so, is it is OK to reopen the account in order to do this?

OR

Would the bank need to follow the typical process of sending the customer a cashiers check like we do in a situation when the customer doesn't owe the bank any money, and its up to the customer as to if they want to pay the bank back for their prior Charge Off?

My initial thought is that the account was closed, and as such the deposit contract/disclosure given to the customer when they opened the account, is now null and void, meaning the bank no longer has a "right to off-set". Additionally, if the bank were to reopen the customers account for any reason, they would need the customers permission and would need to "re-disclose". I am leaning towards the bank needs to send the customer a cashiers check for the full amount of the claim absent customer approval to reopen the account or open a brand new account. Thoughts?

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#2160322 - 01/12/18 04:28 PM Re: Reg. Claim on OD Closed/Charged Off Account Compliance Geek
burkemi Offline
Platinum Poster
Joined: Nov 2013
Posts: 549
Most Reg E claims can't be resolved in the first 10 day window, at least in my experience. So my first question, if this is a claim that falls under Reg E, have you already provided provisional credit? The closed account doesn't change that requirement, only the way the provisional credit is issued (as you've said, a cashier's check).

Keep in mind that Reg E is a very consumer-friendly regulation. We must make the customer whole, as in providing credit for the transaction(s) in question, as well as any fees incurred and/or any interest lost due to the transaction(s).

If it isn't actually a Reg E claim (merchandise not received, dissatisfaction with product, etc...) then your answer falls back to your card issuer. We are a Visa bank, and can't "profit" off of the dispute. So if we are able to recoup the funds, we must provide those funds to our customer. I assume (yes, I know, a dangerous thing to do) Master Card has a similar requirement.

Since you've said you were able to recover the funds, I agree with you, that your best course of action is to provide those funds to the customer, rather than apply to the charged-off account.
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