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Conflict Between Reg E and Merchant Rules

Answered by: 
John Burnett

Question: 
A customer disputed a transaction saying that they were scammed. The bank filed the dispute through their dispute program with a well known vendor I'll refer to as V. This was on October 20. V submitted the claim to the merchant on December 12, and they responded with evidence that the customer initiated the transaction. It went into pre-arbitration and the bank did not hear anything further. At 90 days the bank closed the case with the customer being responsible because the merchant said the evidence proved it was the customer who did it. On January 30, the bank received credit from the merchant stating that there was an error and they are now returning the funds. The bank contacted V since it had been past the 90 days and were told that the merchant has 30 days once they receive the dispute, then when the bank gets the results, they have 30 days for pre-arbitration, then the merchant has 10 days to respond to that. This doesn’t to fit with Reg E time requirements. There is some confusion as to how the bank should handle this situation. They would like to return the money to the customer, but are unsure of how to proceed. What should happen in this case and was it mishandled based on Reg E and merchant rules?
Answer: 

Mastercard and Visa rules on debit card claims against merchants operate independently of Regulation E. The bank must comply with both sets of rules, once based on the regulation, the other based on the card association's rules.

The bank believed it had evidence of the customer's authorization when it closed its investigation after 90 days and revoked any provisional credit it may have given. That's when Regulation E's coverage ended, but the Mastercard or Visa rules allowed for further action by the merchant, and the merchant took that action when it submitted a merchant credit. The card association rules require that such a merchant credit be credited to the cardholder's account by the issuing bank. That is not in conflict with Regulation E.

If the facts were reversed, and the bank had provided the customer a final credit under Regulation E, but the merchant later, and within card association timelines, resubmitted the debit, the bank would not be able to reopen the Regulation E dispute even if it has to honor the merchant transaction.

First published on 03/19/2023

Filed under: 
Compliance
Filed under compliance as: 
Reg. E
Debit Cards

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