Customer authorized online purchase, received broken merchandise, and has attempted to contact company this was purchased from, but has been unsuccessful in reaching them. Customer has now asked bank to look into this. This is not an unauthorized transaction or an "error" as defined in Reg. E. The bank has no obligation to do anything in this type of situation, do we? Not required to provisional credit, investigate, etc?

And what about a situation where customer again, authorizes a purchase online, doesn't receive their merchandise, but account has been debited. Customer hasn't supplied bank with any receipt/purchase documents to support if/when the purchase was even made. Again, based on the limited information provided thus far by customer...bank has no obligation to do anything at this point, correct?

Neither of the above scenarios are electronic funds transfer errors. Your obligation to assist your customer comes from your contract as a VISA or MC issuer which requires issuers to attempt to assist cardholders that have disputes with merchants in order to protect the integrity of the card brand.

Since Reg E doesn't apply, you can make the customer jump through all of VISA/MC hoops relating to merchant contact and providing supporting documentation for their claim prior to processing a chargeback. Also you don't have to provide credit until the claim is resolved in the cardholder's favor (assuming that it is.) If the cardholder cannot produce the required documentation, then you do not have to attempt the chargeback.

I'll be covering the dispute processes and comparing Reg E to VISA/MC at my upcoming webinars in October.

VISA and Reg E Error Resolution

Mastercard and Reg E Error Resolution

Thanks for all of this information BrianC. You stated: "you can make the customer jump through all of VISA/MC hoops relating to merchant contact and providing supporting documentation for their claim prior to processing a chargeback." Where can I find what "all of VISA/MC hoops" are? We offer a MC branded card.

So in the first situation (broken merchandise) we MUST (as a MC branded card issuer) send the claim for investigation, but don't have to provide credit, until it is final?

And in the second situation, we don't have to attempt the chargeback until the cardholder can produce the required documentation?

I have a similar situation where a customer authorized a vacation rental but later canceled. It has been 9 months and the merchant still has not issued a refund. The customer is now disputing the charge with our bank. Would I be correct in saying Reg E rules do not apply since the customer initially authorized the transaction, even though the transaction was later canceled?

Correct - that is not a Regulation E issue as it was originally an authorized transaction..

Thank you Randy.