I did find the answer in another BOL post on Reg E, in case anyone else comes across this:
The question here as it pertains to Reg E, needs to focus on the refund being the disputed transaction. The transaction to make the purchase was authorized. There is no dispute there, but if a refund was promised and not delivered then that is an error.
Next, if she was in fact allowed to rescind the transaction and the company promised a refund which didn't come thru, that is a Reg E error. "An incorrect electronic fund transfer to or from the consumer's account;"