We have a credit to an account that is being disputed by the customer. Further, this is a debit card transaction conducted in a manner that does not allow charge back rights. So, we cannot send this back to the merchant. How have y'all handle these situations?

The customer received a merchant credit or a debit was process to their account. I cannot tell by what you said.

A merchant credit was applied to their account. Sorry for the confusion.

I would check with my processor to see if an exception exists for a credit to be returned. If there isn't an exception, I would try to contact the merchant to see if you can send a check. And if the merchant won't accept it or you cannot reach them, I would close the case. 1005.2(m) states it's not unauthorized if the consumer receives a benefit. I would document your attempts to return the funds on behalf of the cardholder, but if you've done all that, I think you have pretty much exhausted your avenues.

(m) “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 key word in that definition is "from." A credit to a consumer's account can never meet that definition.

On the other hand, it could meet one of the other definitions of "error" in paragraph 1005.11(a)(1).

I agree that it could meet the definition of "error" which is why I would try if the situation happened to us.