You're correct on the inapplicability of Regulation E's error correction rules at 1005.11. There is no Regulation E error in this situation. Mastercard rules require that you provide your customer with credit when you process the charge-back.
MC Merchandise Not Received (Charge Back)
If a customer orders merchandise online, doesn't receive it and then finds out that the merchant has gone out of business, do we have to give them credit as soon as we process the charge back (under MC - merchandise not received) or can we wait until we have retained the credit from the merchant? I don't believe this would be Reg E since the transaction was authorized.
First published on 06/24/2018