Good afternoon,
We have an influx of members who, we feel, are abusing the dispute process. They fund their accounts with a small amount of money, perform debit card transactions and then dispute all of the transactions as unauthorized. We provide provisional credit, the member takes the money and when the lose the dispute, we are at a loss.

We are looking for a way to cap the number of transactions a member can dispute to mitigate our losses. I have reviewed Reg E several times and do not see where this is mentioned. Any thoughts on your end?

Thank you,
Michelle

You cancel their card and don't issue a replacement. As long as you keep issuing cards, you own the Reg E risk.

We are canceling the card when they dispute but are issuing a new one because we are not able to prove that they are abusing the process until they call us two or three times.

Thanks for the information.

Remember, your bank owns the card, not your customer. You are under no obligation to reissue a card. Depending on the amount of the transactions, you may consider ending the banking relationship with your customer altogether.

They fund their accounts with a small amount of money, perform debit card transactions and then dispute all of the transactions as unauthorized.

that right there says what to do. when you get disputes, look to see how recently it was opened and funded, and don't reissue. no need to contribute to their continued taking advantage of you

Question on cancelling the debit card when we feel there may be abuse. Is there a requirement that we must state that we can cancel their debit card at any time? We have a customer who has repeatedly disputed transactions as unauthorized, and is now saying that we cannot take their debit card from them. I don't see where we spell this out in our EFT Disclosure.

A debit card is a feature of an account that you can choose or not choose to extend to a customer. Going through my wallet, the back of most of my cards says, "This card is the property of XYZ Bank and must be surrendered upon demand." The commentary to 1005.8(b) also is helpful:

2. Changes not requiring notice. The following changes do not require disclosure:

i. Closing some of an institution's ATMs;

ii. Cancellation of an access device.

My kids tell me I can't withold their allowance if they don't clean their rooms. That doesn't make it so.

Or just close the entire account relationship - that is allowed with no questions asked also. I would not spend another minute on this soon to be ex-customer.

Since Michelle used the term, "member" I assume this question comes from a credit union. Unlike banks, a credit union can't just cut a member loose, it requires a vote of all members to do it. However, you can limit services to encourage the member to find another place to obtain services. I've seen many credit unions limit challenging members to only savings or share accounts.

Different take on the same question.

We are looking to be more aggressive in not issuing new debit cards when abuse is suspected; however, I believe that Regulation B prohibits the same process for Credit Card Dispute/Billing Error abuse. Management was not fond of that advice. Am I missing anything in my analysis?

Nope - you are not missing anything. A customer disputing a charge on a credit card is exercising their rights under the Consumer Credit Protection Act

One of the prohibited basis in Regulation B is "the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act".

So, in order to cancel their credit card account, you need a lot more than them just filing a dispute. If the disputes are not in good faith, you better be able to prove it.

thank you.

JB

I want to circle back on this if I could.

1) I know that we cannot cancel a credit card because of multiple credit card disputes.

2) I know that we can cancel a debit card if the dispute process is abused.

3) What about this scenario?...The customer is abusing the debit card dispute process, but has a credit card as well. Could we proactively send an adverse action on for the credit card? They technically have not disputed anything covered under the Consumer Credit Protection Act. Nevertheless, it seems like we'd be opening a can of worms this this position in today's regulatory environment. I'd be curious to learn what others thought.

Thank you,
JB

What does your credit card agreement have to say? Something like this:

We are not obligated to honor every transaction, and we may close or suspend your account. Sometimes we close accounts based not on your actions or inactions, but on our business needs.

Talk to your legal counsel if you want to get rid of a customer.

thanks. we'll take a look.

It is illegal discrimination under ECOA to discriminate against any applicant, with respect to any aspect of a credit transaction—
....
(3)because the applicant has in good faith exercised any right under this chapter.

"This chapter" refers to 14 U.S.C. Chapter 41, which includes ECOA, TILA, and the EFTA, among other laws.

The unknown here is where the line is between "good faith exercise" of rights under EFTA and Reg E and "abuse" of those rights. And THAT is what you should talk with legal counsel about.