Reg E Claims and Chargebacks

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Question:

Regarding 12 C.F.R. §1005.11 - Am I correct in understanding that consumer liability MAY be applied in the tiers but is not automatically applied to all of those claims in which it may apply? For example, lets say we have a $74.00 transaction in question and the claim is that it is unauthorized. We determine that it is a fraudulent transaction. If we hold the consumer liable for $50 (granted they told us about it within 2 days of discovery) that means that we could not file a dispute (according to our vendor's procedure) because we would have to file for the full $74 and upon winning that dispute we would then profit from the dispute process as we are only "out" $24 at this point but would have an excess of $50 and no account to apply it to except Other Liabilities and we cannot offset our debit card losses with it. Let's say that we just hold the consumer liable for $50 and write off the $24 as a loss, which would make no sense to me either seeing as how our chargeback process is only $12 a claim. Also, we have Visa debit cards so in saying that, if the transaction was not run through the Visa network, but say run through STAR, would our consumers not have the Visa Zero Liability protection since the card used has a Visa brand?

Answer:

I can tell you that Visa prohibits the bank from profiting from the chargeback process. That is, if a chargeback is filed, the consumer is not to be held to the Reg E liability amounts. Otherwise issuers may hold the consumer liable, collect from the merchant and take that to offset other losses or as miscellaneous income - obviously a counter-consumer protection issue. If the funds are collected after the fact, they would be repaid to a consumer who had previously been held liable for that amount. Similarly, we had Reg E fraud cases that we settled with the consumer and prosecuted through the county attorney. In the end if the perpetrator paid reimbursements, once the bank collected what the bank lost, the consumer was repaid the amount they had been liable for from future reimbursement payments.

On that, the liability in Reg E is under 1005.6 and "may" means that the bank can hold the consumer liable under certain circumstances, not that it must. Like all consumer protection rules you can always do more for a consumer, but never less. If the fraudulent charges did not use an authorized access device, the consumer has zero liability already. If Visa provides zero liability, you can do that for the consumer, but you can not do less than Reg E requires. To get zero liability Visa imposes certain requirements. If those are not met, no enhanced protections need be provided and the STAR network would be a condition in that, using your example.