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#2171637 - 04/03/18 08:28 PM Reg E: Definition of Unauthorized Transaction
Compliance Ben Offline
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Joined: Dec 2015
Posts: 19
I recently reviewed our Reg E dispute area, and I am having trouble making a case to our staff about what I believe are improperly denied consumer claims. I would really appreciate your input!

The reg says an unauthorized electronic fund transfer is "an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit." (12 CFR 1005.2(m)).

Scenario 1: a consumer disputes a charge that she admits she authorized several months ago. She claims she has received no benefit from the transaction and feels like she has been defrauded. She has attempted contact with the merchant, which was a small time photography studio (no longer in business), to no avail. She has filed a dispute with us claiming that, although she authorized the transaction initially, she has received no benefit and has no hope of being made whole by the merchant. Are we obligated to give her the money back since she derived no benefit (our investigation has not been able to prove otherwise), or since she gave initial authorization, can we rightly deny her claim and advise her to pursue the merchant (i.e. she can sue them)?

Scenario 2: a consumer disputes a charge that she claims she did not authorize. A merchant, who she does not recognize (it originated from China), charged her debit card (several hundred dollars) through PayPal and shipped "a rock" to her address. Our Reg E staff sent a chargeback to PayPal, who represented with feeble documentation saying that the AVS was a match (no further evidence). We denied the consumer's claim after receiving the representment docs since the AVS was a match and the consumer received merchandise at her address. The consumer marched in to one of our branches with the box of rocks, reasserting that she did not authorize the transaction. Should we have given her money back, even though she received merchandise from the transaction and the merchant is using the fact that her physical address matched the card as justification for refusal of chargeback?

To me, if the claim falls into a "grey area', we are better off just giving them their money, but I am getting a lot of pushback. Do they have a leg to stand on, or is it shaky grounds?

Thanks in advance for any help/advice!

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#2171657 - 04/03/18 09:33 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
David Dickinson Offline
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David Dickinson
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Central City, NE
#1. She admits she authorized it. Therefore, it's not an unauthorized EFT.
#2. She didn't authorize it (or you can't prove she did). IMO, a rock is not "benefit", unless that's what she ordered.

I don't think these are grey.
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#2171661 - 04/03/18 10:12 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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I would still take #2 to pre-arb if it was a high dollar rock.

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#2171693 - 04/04/18 03:06 AM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
BrianC Offline
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BrianC
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Posts: 6,365
Illinois
I agree with both David and Valley Girl. Also besides an AVS match, many internet purchases also provide the IP address from which the purchase originated or an email address used to set up the account. A reverse IP lookup will often prove that the order did not come from you customers computer. Honor the Reg E claim and request an updated letter to file pre arbitration(VISA) or arbitration chargeback (MC).
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#2171732 - 04/04/18 01:32 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Compliance Ben Offline
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So, for scenario 1, it doesn't matter that the customer may have been defrauded by a bad merchant, as long as she authorized the transaction, she has no claim under Reg E?

Thank you all for your input!

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#2171760 - 04/04/18 02:49 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Adam Witmer Offline
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Correct. If the transaction was authorized it does not qualify as an unauthorized electronic transfer under Regulation E, even if the customer did not receive the expected benefit.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2172264 - 04/06/18 02:30 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Compliance NABW Offline
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#1 is a Merchant Dispute. Complain to the BBB, etc. Not a Reg. E issue

#2 - HHAHA. Why even bother sending the rock in this scam? Valley girl - What's a high dollar rock? Crack? I'm assuming they didn't send her a diamond.

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#2172368 - 04/06/18 06:39 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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By "high dollar rock" I meant if the dispute was for a larger sum of money. If it's a $40 dispute, I'm going to reimburse the customer and not pursue with VISA.

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#2172422 - 04/06/18 08:51 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Compliance NABW Offline
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Got ya, lol. Thanks for clarifying. I did not take it as such originally.

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#2184654 - 07/09/18 10:05 PM Re: Reg E: Definition of Unauthorized Transaction Compliance NABW
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
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Lost in a regulatory fog
Bringing this back up. Customer has multiple purchases (all under $25 each but total over $5,00) from iTunes. she claims she was playing games but only free ones and did not authorize any payments. On conference call with Apple they state the transactions occurred on her registered device with her user id and password. Is this enough evidence to conclude the transactions are authorized?

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#2184656 - 07/09/18 10:32 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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TX
She is still stating they are not hers? I guess I would start asking about the device - is it lost? If not, are the charges occurring when she is away from the device?

Reg E on a Monday should be illegal...

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#2184675 - 07/10/18 12:36 PM Re: Reg E: Definition of Unauthorized Transaction Valley girl
Carolina Blue Offline
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Carolina Blue
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Lost in a regulatory fog
She still has her device and its only her and her husband in the house. Basically, she did it but claims she never agreed to pay money so now with this huge bill she's doesn't want to pay it. I'm just trying to figure out if that's enough evidence to state the transactions were authorized (we can't get anything in writing from itunes) and the issue is between her and the online game companies.

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#2184697 - 07/10/18 01:20 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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I would deny the dispute - she did benefit. It's not unlike the people who order the free trial and don't pay any attention to the terms and conditions of the subscription. She benefitted - she played the game whether or not she understood the terms and conditions. Investigating Reg E falls more under preponderance of the evidence, not a "beyond a shadow of a doubt" to me.

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#2184698 - 07/10/18 01:27 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Compliance NABW Offline
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Joined: Oct 2015
Posts: 1,637
@Carolina,

I think there are a few things going on here that would relieve you of having to "pony up."

(1) Depending on when the customer says she became aware of the "unauthorized" charges and when she notified the institution, her liability may be $500 anyway, which it seemed like you were saying may be the full amount of disputed charges.

(2) If the "registered device" here means her iPad or iPhone or whatever and said device is in her possession, then I think that is sufficient evidence to say her claim that the transactions are "unauthorized" could be rejected. If the "registered device" just means her debit card, then it is difficult to say for sure, as somebody could have stolen her password, id, and card info, and that is something I am still confused on myself when it comes to POS. If the debit card is never away from possession of the borrower, is this covered under the "theft involving an access device" liability tiers or not?

(3) Finally, based on the description you provided, I think this really better meets the definition of a merchant dispute. She gave Apple her card information; therefore, it is not really an "unauthorized transfer," unless she notified your institution that Apple no longer had the right to make charges to the account. In my humble opinion, I just don't believe this fits the description of an "unauthorized electronic transfer."

Unauthorized electronic fund transfer” means an electronic fund transfer from a consumer's account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. The term does not include an electronic fund transfer initiated:

By a person who was furnished the access device to the consumer's account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized;

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#2184711 - 07/10/18 02:32 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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TX
JPC - I don't think the tiered liability would apply in this situation - her "access device" was never lost or stolen (1005.2). But I could be wrong. For everything I think I understand about Reg E comes a situation that puts me back 2 steps:

Accepted access device is an access device
that a consumer

• requests and receives, signs, or uses (or authorizes another to use) to transfer money between
accounts or to obtain money, property, or services
• requests to be validated even if it was issued on an unsolicited basis
• receives as a renewal or substitute for an accepted access device from either the
financial institution that initially issued the device or a successor (12 CFR 1005.2(a)(2))

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#2184727 - 07/10/18 03:36 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Compliance NABW Offline
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Posts: 1,637
Hey Valley Girl - That's one of the things that confused me in Reg. E. Can the access device (debit card) be "virtually" stolen? In other words if the debit card information is compromised enough that a thief can make POS transactions with it, is that a "stolen" card for Reg. E liability purposes, even though the actual physical card remains in the possession of the account holder?

I'm not very confident either way.

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#2184743 - 07/10/18 03:59 PM Re: Reg E: Definition of Unauthorized Transaction Compliance NABW
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 958
Lost in a regulatory fog
Thank you all for the discussion. Yes, buy the registered device I mean an ipad which the Apple rep said could not be duplicated so the authorization was definitely done by her. I agree it's a merchant dispute, but wasn't sure if we needed to somehow try to track down the app agreement to prove when she agreed to the download she authorized the fees.

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#2184753 - 07/10/18 04:29 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
Valley girl Offline
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Posts: 351
TX
JPC - the way I handle our disputes is that in any CNP (card not present) transaction, I don't enforce the $50/$500 liability. As for those transactions where the card really is lost or stolen, I have never had a member that didn't state that they noticed before "today." I've tried to impress the dating issue to our reps, but have not been very successful.

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#2196014 - 10/19/18 08:35 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
SJB Offline
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SJB
Joined: Jun 2002
Posts: 1,210
California
We have a related but slightly different scenario:

Customer racked up thousands of dollars on his card at a casino and now claims that due to recent surgery he was not competent to authorize the transactions. He is upset that the casino put the transactions through as POS so the low daily limit of $500 did not slow down his spending. He is still driving, still working (as an attorney) but wants his money back.

.
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#2196027 - 10/19/18 11:10 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
BrianC Offline
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BrianC
Joined: Nov 2004
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Illinois
Buyer’s remorse and not covered by Reg E or VISA/Mastercard.
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#2197604 - 11/07/18 05:16 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
John Burnett Offline
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What did Shakespeare say about lawyers? And after you do that, terminate that particular attorney's deposit agreement.
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#2197624 - 11/07/18 06:09 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
rainman Offline
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If you do the first, the second is unnecessary . . .
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#2197651 - 11/07/18 07:13 PM Re: Reg E: Definition of Unauthorized Transaction Compliance Ben
John Burnett Offline
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Cape Cod
Glad someone got the reference. wink
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