When reversing a provisional credit on a customer dispute, REG E states that a bank must: "Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited." Does the requirement to honor these items start with the notification or the debit? We currently send notice that we will debit in 10 business days. Must we still honor checks 5 days after the debit, even though the customer has had notice for more than the required 5 days.

What this means is that for 5 days FROM notification, you will honor that much (whatever $ amount you are reversing). I caution you not to give them so much time. If you say that you will give them 10 days before you debit the account, an unethical person may pull all of the money out.

I would reverse the provisional credit, notify them but honor that much money for 5 days without considering them overdrawn.

I asked this question in another thread but got no response so perhaps you would be willing to direct me. Our bank has a similar process in that we also give the customer 10 days before we redebit. You mentioned that an "unethical person may pull all of the money out." I just wanted to ask if there is anything the bank can do if in fact the customer closes their account once the initial provisional credit hits (the bank hasn't resolved yet). If the bank does not have other accounts to offset, do they have any other options? Thank you.

In essence, if the bank reverses the provisional credit, it is in the same position it would be in if it paid an overdraft on the account and the customer walked away. The bank then has to determine whether or not to pursue the overdraft.

David - it's Monday and I don't think I've had enough coffee yet but would you please help me understand this. You mentioned that the 5 day period during which we would need to honor items would begin on the date of "notification". Shouldn't we be concerned that the customer may overdraft once the debit hits their account? We have had the same question as the original poster because thought that was the 5-day window we should be looking for (the 5 days from the date the debit actually hits). Thank you.

Hopefully, David's in a position to respond on his own behalf today, but I'll just make the observation that he emphasized the correct language in his prior post:

(2) Debiting provisional credit. Upon debiting a provisionally credited amount, the financial institution shall:
(i) Notify the consumer of the date and amount of the debiting;
(ii) Notify the consumer that the institution will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. The institution shall honor items as specified in the notice, but need honor only items that it would have paid if the provisionally credited funds had not been debited.

I do not find anything that suggests you cannot debit the account the same day you send the notification. (If it creates an overdraft, there would be no charge.) I also agree with his earlier observation that it may not be advisable to to give 10 days advance notice of the debit. Theoretically, as long as there are no NSF fees and you pay items you would have paid if the provisional credit were not reversed for the next five business days, there is no harm to the customer.

Ken has it perfectly right. Reverse the provisional credit, notify and don't charge them for overdrafts that occur only because of the reversed amount.

Our bank also credits any NSF fees that may have been charged in connection with the disputed amount. Is this required under Reg E? I cannot find anything that refers to this type of fee, but where it does mention fees I was thinking those were like service charges, etc. Also, our system has a 2 day delay from the time the redebit is initiated until it actually posts. If we sent a redebit letter today and stated the redebit would be effective today, is this 2 day "window" counted toward the 5 we must honor items, etc. or do we start the 5 days when the debit actually posts to the account? Thank you.

Last question first. The five days starts from the date you put the notification in the mail or otherwise notify the customer, not necessarily from the effective date of the debit.

Now your first question. The language of Regulation E and its commentary specifically require that compliance with the error resolution procedures in §205.11 must put the customer back in the same position as he/she would have been in had the transaction in question not occurred. That means refunding any and all fees or service charges, or anything else that were caused by the transaction or that would not have posted if the transaction didn't happen. And crediting of interest, if interest is paid on the account. And, if the transaction resulted in a dip into the customer's OD line, a reversal of any fee or interest paid by the customer there. This assumes, of course, the bank is either doing a provisional credit or a final credit. If provisional, and you decide later that the transaction posted properly (denying the claim), you can undo all that you did.

Fed Auditor did not agree with you: institution received mark for not notifying customer five days before debit.

What didn't the auditor agree with? You have the choice of debiting and then notifying or notifying and then debiting. Either way, you must honor that amount for 5 days.