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Unauthorized Charges - Visa Zero Liability

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We had a customer call in to the bank because she had a transaction that was being denied. She was trying to place an order for a camera over the internet. It turns out that she was over her limit for the day. I reset the limit so her transaction would go through and then she placed her order. Within 30 minutes she called back and spoke to one of our call center reps stating that the company had preauthorized more than she had authorized and she wanted to do a dispute for fraud. In her phone call with the call center she had mentioned that the company was cancelling her order and was going to credit her account. What should be done in a situation like this? The customer is claiming Visa Zero Liability stating that under it she can dispute a charge for any purpose. Our ATM department has had some training on Reg E, but we are still confused as to when Visa rules come into play and what exactly Visa considers unauthorized charges. The customer gave her information to this company so she authorized them to use it, but they took more than they were authorized., so shouldn't this be between the customer and the merchant?

Admittedly, trying to figure out which rule applies here is like trying to hit a moving target. First your customer wanted an increase in her limit so she could complete a transaction. Then she wanted to dispute the transaction she approved, because the dollar amount of the authorization request was more than she had bargained for. Next she said that the merchant was crediting her account. What do you do first?

Let's start with Regulation E, section 205.11 (Error Resolution). There can't be a claim until there's an error, and the pre-authorization request isn't an error because it's not a transaction that posted to your customer's account. Based on the narrative you've given, it's possible that the merchant's debit and credit to your customer's account will post within a couple days of one another. But let's assume that the debit first posts and your customer makes her claim. Based on her claim that the dollar amount of the transaction exceeded the amount she authorized, a strong argument can be made that the transaction (as posted) was unauthorized (205.11(a)(1)(i)), or at best incorrect (205.11(a)(1)(ii)). If the merchant fails to process the promised credit within your 10-day limit for making a provisional credit, you'll need to credit your customer's account. There is no $50 reduction allowed in this case, because there's no involvement of a lost or stolen access device.

If the merchant makes the refund before you finalize your investigation and provide final credit, you can reverse the provisional credit based on the fact that the customer was made whole and no error took place.

The customer's understanding of the Visa Zero Liability provision is incomplete. It covers unauthorized purchase transactions made with the card (or card number) over the Visa network. So she can't file a Zero Liability claim for what we typically call a "merchant dispute" -- problems with quantity, quality, delivery, etc. Regardless of what Visa rules cover, remember that they do not replace Regulation E. Regulation E always applies, and Visa rules that are more protective of your customer get laid over the Regulation E foundation.

First published on 6/09/08

First published on 06/09/2008

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