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Reg E - Cardholder Liability & Merchant Chargeback

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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?

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 4/27/09

First published on 04/27/2009

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