How can a financial institution deny a claim based upon product agreements between merchant and customer.

For example: customer purchases a part, tries to install it, but bends the part during installation and returns it to the merchant but the merchant would not give them credit The customer then initiates a REG E dispute asking the FI for reimbursement.

Well, first of all that is not a claim covered under Regulation E. Regulation E only cares about whether the original transaction was authorized or not.

In the scenario as presented, there is no question that the original transaction was authorized.

Regulation E does not cover cases of buyer remorse and disputes with the merchant over merchandise.

If the product was purchased with a MasterCard or VISA card, you would have to look at any of their rules that are tied to that specific card for any potential customer refunds and the process the bank and customer would have to follow.

Pretty simple.

You take the customer's statement that they purchased the product. You then look at the regulatory definition of an electronic funds transfer error in 1005.11(a).

(i) An unauthorized electronic fund transfer;

(ii) An incorrect electronic fund transfer to or from the consumer's account;

(iii) The omission of an electronic fund transfer from a periodic statement;

(iv) A computational or bookkeeping error made by the financial institution relating to an electronic fund transfer;

(v) The consumer's receipt of an incorrect amount of money from an electronic terminal;

(vi) An electronic fund transfer not identified in accordance with § 1005.9 or § 1005.10(a); or

(vii) The consumer's request for documentation required by § 1005.9 or § 1005.10(a) or for additional information or clarification concerning an electronic fund transfer, including a request the consumer makes to determine whether an error exists under paragraphs (a)(1)(i) through (vi) of this section.

The customer authorized the purchase and was charged the correct amount. You deny the claim stating that the transaction as described is not an electronic funds transfer error.