A customer gave authorization to debit her account by use of a debit card and then changed her mind and wanted a refund. The company told her they would give her a refund but her account would still be charged before they could process the refund. In the meantime, she came in and filled out a unauthorized notification with us because the company had not refunded her money. We have filed that form with our debit card provider but they cannot do anything for 30 days since there migh possibly be a refund. We are know at the end of our alloted 10 days and need to do something! The only likely action I think we might have is to give provisional credit for the amount and wait the time period for the possible refund. Is there another solution or is this the right action?

Actual in my opinion there is no Reg E dispute. The transaction was authorized at the time. She needs to work this out with that company.

It was my opinion that it would be classified as an error since it is an incorrect EFT.

There is no action to be taken by the bank under Reg E, as this is a Debit Card transaction, not a credit card transaction. It's, I assume, a POS transactions and the bank cannot accept a, in effect, stop payment on a POS transaction.

I'm not sure what your debit card provider has in mind, refund wise. I'm also not sure what an "unauthorized notification" is or has to do with this transaction.


HERE'S a good web page covering this subject.

I was always taught that all debit card transactions were covered under Reg. E. While you cannot put a stop payment on the POS Transaction the customer can report it as not correct. This is my opinion.

Here is the deal, Reg. E doesn't care if you are happy with the transaction, only that you authorized it, did it, or received benefit of it.

Reg. Z does care if the customer is satisfied with the goods and services purchased and allows disputes accordingly.

In this case, you are in a gray area. The customer authorized the transaction, but then backed down.

At first blush, I'd give provisional credit believing that when the refund comes thru, the customer is "whole" and I'd take my money back. If it isn't refunded within that time, the business is giving her the business on the refund.

While it was initially authorized, it sounds like she rescinded prior to the charge taking place? Otherwise, I say it was an authorized transaction at the time they took the funds and she needs to cure it with them, under Reg. E.

If this hit a LOC, "Z" will apply.

The customer may cry "unauthorized" on this transaction, but she's mistaken. At the time the transaction took place, she had authorized it. The bank need not, IMHO, recognize this as an error of any sort.

The transaction is, of course, subject to Regulation E. It just doesn't fall within the definition of error in §205.11. It certainly is NOT subject to a stop payment right. The customer is at the mercy of the merchant's honesty in saying it would credit her back for the purchase.

This transaction is only in a gray area if you let it be there. It does not belong in a §205.11 process at all. But if the customer fails to get credit from the merchant, you can attempt to assist under MasterCard/Visa rules.

A long way around to get to -- you have no obligation to credit this account provisionally at the 10 day mark. If you accepted the customer's claim into your §205.11 process, respond with "You have informed us that the transaction took place as posted, and was authorized at the time."

At first blush, I'd give provisional credit believing that when the refund comes thru, the customer is "whole" and I'd take my money back. If it isn't refunded within that time, the business is giving her the business on the refund.

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Andy, I'll disagree with you on this one. The customer cannot change their mind - the merchant handles a debit card transaction the same as cash - you can always give anyone credit, but in the case of a debit card the customer has a much higher risk level, versus a credit card.

For example, if the POS entry comes in and there is insufficient funds, what happens? The bank must pay the item as there is no recourse back to the merchant.

One other thought: if the transaction was done NOT using a PIN, there are additional chargeback rights under the card issuer, i.e. Visa or Mastercard. Under Visa Regs, if the merchant still has not credited back the customer after 30 days, there is a chargeback right for "Credit Not Processed". So there is an additional avenue there, outside of Reg E. Again, this would only work for a signature-based, mail/telephone order, or internet purchase.

It is not clear to me when the debit took place and when the authorization was rescinded.

"A customer gave authorization to debit her account by use of a debit card and then changed her mind and wanted a refund."

It sounds like they had not charged her account when she said don't do it. I believe it is gray because of this. Did the customer receive any products or services at all? Did the merchant not provide them because the refund was already requested? Why is it taking so long to refund? Before I could make a solid call, I'd want specifics. But with the info at hand, I'd help out the valued customer since they already started the claim and went the 10 days. This also sounds better than, "we are denying the claim because now we feel there is no claim". That should have been stated up front.

croak44:

It's my understanding that there are no charge back rights under the VISA Debit Card program - if a customer authorizes a POS entry (and it clears the authorization system) it gets paid - period, end of story.

Andy has a point relating to customer service, but that does not detract from the fact that the merchant does not have to credit the mutual customer under debit card rules.

We have had several situation in which customers have insufficient funds to pay POS debits, but we cannot send the debit back - it would be like returning an ATM debit - it cannot be done.

Actually, the bank would be able to do a charge back for "Credit Not Processed". The Visa Regs state that Reason Code 85 can apply when "the cardholder acknowledges participation in the original transaction and the merchant provided a refund acknowlegement, but a credit transaction was not processed through interchange". The only "catch" is that the customer has to give the merchant 30 days from the refund acknowledgement date for the credit to be processed. On day 31, if the credit hasn't come through, a chargeback can be initiated.

And, to amend my prior post, if it was a PIN-based transaction routed through Interlink, there is a "Credit not Processed" chargeback reason code for that as well.

Both of these require acknowledgement from the cardholder of participation in the transaction.

Andy, I think that the transaction was run at the merchant terminal, probably as a signature-based debit. That effectively enters the transaction for posting, whether or not it hits the account right away. That would mean the transaction was authorized at the time.

It appears the bank in question accepted an error claim from the customer where it did not have to. Having done so, they now owe that customer a response. Because the claim does not, in my opinion, fall within the definition of error, the Reg. E time frames don't apply. However, they have a customer that is expecting the bank to solve her problem.

Perhaps the wording of the bank's response ought to be softened somewhat from that which I suggested above. But, if the bank wants to wriggle out of this until the merchant has had time to refund the transaction, it can, I believe, by writing the customer to say that

1. the bank believes the transaction took place as posted, and was at the time authorized
2. if the merchant fails to credit the customer's account with a refund within 30 days, the bank will attempt to assist the customer using MasterCard/VISA procedures

Signature debit POS transactions are a real challenge for a bank to handle. They are subject to Reg E but not all problems have to be handled via an error claim. Customers don't understand the difference between the credit card rules and the Reg. E rules, and why would we expect them to? We often have problems with these rules ourselves, and we've touted the debit card as the twin sister (some would say the evil twin sister) of the credit card.

John, I have erred in the past making assumptions and while statistically you may be correct on the transactions, I wondered if it could have been a telephone purchase with a call back moments later wanting to rescind?

I agree with John. This is NOT an "unauthorized transaction" and not subject to E's error resolution requirements.

The following information is taken off the EFT error log form the customer filled out. She had ordered with the company before and they called with an offer to provide service to the website for 2 weeks free. She told them that if it was free that would be ok. They then told her that if she was unhappy that she could cancel and get a refund. She wondered why she would get a refund if it was free. They then told her what the cost was and that it had already been charged to her account. So in a since she did say yes at first thinking the service was free, but found out otherwise later. We went ahead and gave her provisional credit because we were out of days to try to decide what to do. I think she will end of getting a refund, but it might be a lengthy process.

If I read this correctly, they had her number on file from a prior transaction. Then they solicited her for an additional service. She was presumably obligated to a service for greater than a 2-week period, but 2 weeks was free. She understood it was only a 2-week trial and they charged her for the longer term.

I'd say they ran an unauthorized transaction and you followed the correct procedure under "E". Additional remedies may have been available under VISA rules. I'll have to let others comment on that.

I am in accord with Andy's opinion. This sort of telemarketing -- try it for xx days and if you don't like it you can get a refund -- is common and takes advantage of a person's tendency not to rock the boat. For the telemarketer to have charged her account already during the phone contact, before she fully understood what what happening (if that, indeed, is how it "went down") borders on deception, IMHO.

Favorite target for these folks? Seniors.

I also agree that this is not unauthorized. I was under the impression the definition of Unauthorized 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 of funds and from which the consumer receives no benefit.

But remember, MasterCard Zero Liability is provided under the following conditions:

1. The customer’s account is in good standing
2. The customer has exercised reasonable care in safeguarding their card
3. The customer has not reported two or more unauthorized events in the past 12 months
4. The customer reports the unauthorized use

I believe this is the same for Visa. We log all disputes. We would check our logs to see if this is a habitual disputer. If not, we would give provisional credit until the merchant credited the account. If after 30 days, the customer did not receive the credit, we would dispute the claim as credit not received. We just had a customer call today that ordered something online and he authorized it. He said the merchant didn't give him a delivery date but he felt he should have received the item. Since the customer was not given a delivery date, we told the customer to wait the 30 days to come in and fill out a dispute. Every day there is something different a customer will attempt to do to stump us. We just get out our reg e and our MasterCard chargeback book and do some reading.