We chose to close an account due to notification of force closure at another bank. A few days after the account was closed the customer disputed an ATM withdrawal that occurred a few days prior to the account being closed. While we are conducting the dispute request, how should provisional credit be handled? Obviously if the dispute comes back as customer liability there is no way we will be able to take back the provisional credit.

The regulation doesn't make allowances for that challenge. You have to provide provisional credit if you can't wrap up your investigation in 10 business days, and, if you have informed the consumer he or she must confirm the claim in writing (assuming it was made orally), that confirmation arrived within the 10-BD period. And you have to make the provisional credit available for the consumer's use. That generally means you'll have to force the account to reopen. Alternatively you could open a new account for the provisional credit. Either way, if you end up taking the credit back (or part of it) and the account goes OD, you are entitled to pursue collection efforts.

Is there any way we can place a hold on the provisional credit? Maybe open a new savings account and place a hold on the funds?

Nope. John already said it here. My suggestion would be to investigate and make your decision before the provisional credit is due if possible.

Thank you both for your input. I did not think there was a way around it but thought I would take a stab at it. It is frustrating that action was taken due to account abuse, now we must provide access for additional account abuse.

Just because you have to provide the provisional credit for the consumer's use, there's nothing requiring that you provide all the access that the consumer has abused to misuse the account in the past. For example, you don't have to pay overdrafts, don't have to issue an ATM or debit card, etc. But if, as you are concerned, the consumer takes the balance down to $0 and you determine that there was no error (the transactions being challenged were authorized, etc.), you will have to take back the provisional credit, overdraw the account, and start whatever collection process you have to try to actually recover the funds.