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Reg E - Cardholder Liability & Merchant Chargeback

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Question: 
A cardholder states that a $100 transaction is unauthorized and does not contact the bank for two weeks. We then submit the charge back and credit the account $100 and debit the account $50 for their liability in the purported fraud. The merchant then represents on that charge back and we debit the cardholder the full $100. In effect the cardholder was debited $150 for the claim and is worse off than when they started. Is it legal to hold a customer liable for the first $50 in unauthorized activity even after the merchant has represented on the charge back? Is this in keeping with Reg E?
Answer: 

No. You can't both refuse the claim and impose liability for the first $50. You have to reverse your provisional credit, which was a net of the disputed transaction and the $50 consumer liability amount. So, you either charge back the $100 and credit the $50 consumer liability, or simply charge the customer for the net of $50.

First published on BankersOnline.com 4/27/09

First published on 04/27/2009

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