No, you are not required to provide a provisional credit to a customer if you have determined that an “error” (such as an unauthorized or incorrect electronic fund transfer) has not occurred on their account — and we do not believe a dispute over the quality of a merchant’s service constitutes an “error.”
Under Regulation E, a financial institution may be required to issue a provisional credit and refund a customer (subject to certain consumer liability tiers for unauthorized electronic fund transfers) if an “error” occurs on their account. Errors include incorrect electronic fund transfers to or from the consumer's account and unauthorized electronic fund transfers, defined as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.” However, as noted in an article from the Federal Reserve Bank of Philadelphia’s Consumer Compliance Outlook, “Regulation E does not define an error to include the right to dispute a transaction with a merchant because of a problem with goods or services.”
For resources related to our guidance, please see:
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Regulation E, 12 CFR 1005.11(c)(1) (“Ten-day period. A financial institution shall investigate promptly and, except as otherwise provided in this paragraph (c), shall determine whether an error occurred within 10 business days of receiving a notice of error. The institution shall report the results to the consumer within three business days after completing its investigation. The institution shall correct the error within one business day after determining that an error occurred.”)
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Regulation E, 12 CFR 1005.11(a)(1) (“Types of transfers or inquiries covered. The term ‘error’ means:
(i) An unauthorized electronic fund transfer
(ii) An incorrect electronic fund transfer to or from the consumer's account;
(iii) The omission of an electronic fund transfer from a periodic statement;
(iv) A computational or bookkeeping error made by the financial institution relating to an electronic fund transfer;
(v) The consumer's receipt of an incorrect amount of money from an electronic terminal;
(vi) An electronic fund transfer not identified in accordance with § 1005.9 or § 1005.10(a); or
(vii) The consumer's request for documentation required by § 1005.9 or § 1005.10(a) or for additional information or clarification concerning an electronic fund transfer, including a request the consumer makes to determine whether an error exists under paragraphs (a)(1)(i) through (vi) of this section.”)
- Regulation E, 12 CFR 1005.2(m) (“‘Unauthorized electronic fund transfer’ means an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit.”)
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Consumer Compliance Outlook, Credit and Debit Card Issuer’s Obligations when Consumers Dispute Transactions with Merchants (First Issue 2016) (“Unlike Regulation Z, Regulation E does not define an error to include the right to dispute a transaction with a merchant because of a problem with goods or services. While a consumer may assert an error with respect to the EFT underlying the purchase of goods or services, a merchant dispute about an issue with the goods or services would generally not qualify. For example, an unauthorized EFT is narrowly defined as ‘an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority to initiate the transfer and from which the consumer receives no benefit. However, Regulation E does apply to an error in the amount a merchant charged the consumer’s card. For example, if a consumer disputed a transaction because the merchant inadvertently charged the consumer’s card twice, the card issuer would have to investigate the alleged additional charge because the regulation protects against ‘an incorrect electronic fund transfer to or from the consumer’s account.’”)