Consumer Compliance Outlook – Card Disputes

The latest issue of Consumer Compliance Outlook, published by the Federal Reserve, contains an informative article discussing when Regulation E and Regulation Z come into play in regards to consumers disputing transactions with merchants.  The article states Under Regulation Z, credit card issues have two separate legal obligations that could apply to merchant disputes.  In contrast, under Regulation E, debit card issuers only have obligations if a consumer alleges an error with the fund transfer underlying the purchase.

Note that the credit union may have other obligations under state law or under the rules of the payment-processing network through which the card was issued, such as Visa or MasterCard.

Regulation Z provides two separate obligations that may apply to merchant disputes regarding credit card transactions. Under the Billing Error Resolution section, issuers must investigate and resolve certain billing errors, including a transaction reflected on a periodic statement involving goods or services that the consumer did not accept, was not delivered, or was not delivered as agreed.  Commentary to this section clarifies that the error does not apply to a dispute relating to the quality of goods or services that the consumer accepts.

The credit union’s obligation is triggered when the consumer sends a written notice within 60 days of the statement containing the charge. If the consumer did not accept the goods, they are not required to notify the merchant and attempt to resolve the dispute.  The credit union must acknowledge, investigate, and respond within time frames set by Regulation Z.

The Special Credit Card Provisions, under Regulation Z, provide the second consumer protection. This allows a consumer to assert against the credit union any defenses and claims arising out of a transaction paid with a credit card.  This only applies if the cardholder attempted in good faith to resolve the dispute with the merchant and the transaction exceeds $50 and occurred in the same state, or within 100 miles, as the cardholder.

For debit card transactions, Regulation E allows consumers to dispute errors, but does not include the right to dispute a transaction with a merchant because of a problem with goods or services. Like Regulation Z, the credit union must acknowledge, investigate, and respond within the time frames set by Regulation E.  When Regulation E was enacted, debit cards were not available for point-of-sale transfers, and thus merchant disputes were not included.

The article is an interesting read, at least for us compliance folks, and the rest of the Consumer Compliance Outlook includes an article on flood insurance along with other regulatory updates.