Hi All!

Odd question and I can't seem to get a clear answer (so maybe there isn't one! LOL!)

If a customer calls to advise they did not authorize a debit card transaction that is still pending (i.e. has not settled yet), should a claim be filed then, or should the customer/bank wait to file the claim when the transaction settles? Filing it before it settles seems risky because the transaction may never settle, and if it does, it may not settle for several days, limiting our ability to investigate during the first 10 days from the NOE.

Thanks!

Regulation E does not apply to authorizations. They would have to file the dispute if and when it ever posts.

As stated above, it's not covered until it posts, but I've gotten a fair amount of pushback from clients on this. The way I've explained it is to reference 1005.3(b)(1), where “electronic fund transfer” is defined:


Put very simply, there hasn't been any transfer of funds on an authorization, so it doesn't have coverage under Reg E (yet).

There are two ways to handle disputes on pending transactions. First is to tell the customer to call back after it posts, however that may drive an additional call and isn't really a great experience. Second is to take the claim while pending, and then monitor the account to see if it posts. If it does, then you handle the claim business as usual. If it doesn't, then you close out the claim. I would only ever entertain this approach if you have software that can do the monitoring for you.

Thank you so much! This is very helpful!

We are a very small issuer. We use JR00K's option 2. When our member service people write up the dispute, we use the word "pending" for the transaction date. We explain that the transaction may never post, or it may post for a different dollar amount (Walmart, Amazon, etc. sometimes break up the orders). I monitor the transaction posts and then fill in the post date and fix the dollar amount if necessary. It's not a perfect system, but we want our members to report fraud as early as possible to prevent further fraud, and this is the best way we have come up with.

I think these are potentially disputable.

12 CFR 1005.3(b)
(1) Definition. The term “electronic fund transfer” means any transfer of funds that is initiated through an electronic terminal, telephone, computer, or magnetic tape for the purpose of ordering, *instructing*, or authorizing a financial institution to debit or credit a consumer's account.

So, to me, any way you slice it, the pending transaction still instructs the FI to debit or credit the account. Furthermore, at least to the extent of a $1.00 or whatever the amount of the pending transaction is has actually beed deducted. The available balance in the customers' account is generally adjusted accordingly as well. Additionally, an inquiry from a consumer to figure out if something is an unauthorized EFT or incorrect amount is also a Reg. E error under 1005.11.

There is no transaction so what is there to dispute? How are you even going to investigate something that may or may not ever post to the account? These are preauthorization amounts; they are not pending transactions.

While our procedures are similar to others, the problem from the customer's perspective is the preauthorization is usually reducing availability in their account for a couple of days even if it may never complete. You can't fault them for wanting to clear it up as quickly as possible, especially if they're living paycheck to paycheck.

I do not disagree, but the bank really has no dog in that fight unless they just want to delete the preauthorization from their own system. It is not an error.

There is no "transfer of funds" in this situation. The funds remain in the consumer's account. There is presumably a hold, but the funds are still there. Without a "transfer" there is no "electronic funds transfer" to dispute. Moreover, the authorization transmission by the merchant is not an instruction to transfer funds. The instruction to transfer funds does not occur until the transaction is actually submitted to the bank for processing. That may not ever happen, and if it does happen, it may be for a different amount than the preauthorization amount. The Visa and MC rules don't require (or even permit) the bank to deduct funds from the account and initiate settlement based on a preauthorization request.

Another way I've had success explaining this to clients is to reference a different section of Reg E, § 1005.11(a)(1)(iii).


If a transaction is pending at the time a periodic statement is cut, you wouldn't print it on a statement. If it doesn't post, then it never shows up on any statement. If it does post, then it will be applicable to the next statement.

If the bank agrees that a pending transaction is not an EFT for the sake of (a)(1)(iii), then it would also not be an EFT for the sake of (i) or (ii).