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Diet Pills Overload

Consumer Card Dispute Case Study

FACTS OF THE CASE

Account holder Sandy has come into the branch to report “fraud.” She says she recently provided her card number online on a company’s website to pay for the shipping and handling of a free trial offer but didn’t enroll in an ongoing program. She was charged $59.99 yesterday as part of an enrollment by the company and wants the transaction returned. 


QUESTIONS

  1. What additional questions should the frontline ask Sandy?
  2. What are you looking for when you are asking these questions? 
  3. What, if any, documentation do you collect from the account holder at this time? Why? 
  4. If the account holder refuses to sign an affidavit, what is the institutions response / action? Why?
  5. What, if any, documentation do you collect from the account holder if she reports this situation via a phone call vs. in person? Why? 
  6. You are now investigating the claim. Do you return the transaction or investigate? Why? 
  7. What gives the institution the right to investigate vs. return, if warranted? 
  8. If you answered “return” above, what issue(s) can you see with this action?
  9. If you answered “investigate” above, what is your first course of action? What are you looking for as part of the investigation? 
  10. Would your position / answer to this situation change if the transaction is via ACH debit vs. a debit card transaction? Why or why not?
  11. If the institution were to deny this, or a similar claim, what is required? 

 

STUDY ANSWERS 
Please note: Answers may vary based on state law, institution policy, etc. Consult legal counsel or your compliance officer for appropriate handling procedures. 

1.    What additional questions should the frontline ask Sandy?
More specifics, such as what she purchased, did she read the Terms and Conditions, etc. 

2.    What are you looking for when you are asking these questions? 
Information on the likelihood that she subscribed to a subscription, possibly without knowing it. 
        
3.    What, if any, documentation do you collect from the account holder at this time? Why? 
An affidavit but be careful here! Don’t make any statements that promise or even appear to promise the account holder that the institution will take care of the situation. If this goes like 99% of the other cases do, there is nothing the institution can do, unless they elect to write off the loss. 
Be sure any statements during the affidavit signing process or “claim” process are more of a “fill this out and we’ll get it to our investigators who will contact you” type of statements vs any promised action, else the institution could be liable. 

4.    If the account holder refuses to sign an affidavit, what is the institutions response / action? Why?
Your institution is still obligated to investigate the claim of error by the account holder under Regulation E, even if the institution does not have the written documentation necessary for a return. The account holder does NOT have to provide anything in writing when making a claim. A claim of unauthorized activity, even verbal = Notice. 
Notice is served to an institution: §1005.6(b)(5) “The consumer may notify the institution in person, by telephone, or in writing.”
Written confirmation of a verbal claim affects provisional credit ONLY - §1005.11(b)(2) Written Confirmation- Official Interpretation: “While a financial institution may request a written, signed statement from the consumer relating to a notice of error, it may not delay initiating or completing an investigation pending receipt of the statement.”

5.    What, if any, documentation do you collect from the account holder if she reports this situation via a phone call vs. in person? Why? 
Upon receipt of the phone call, your institution has received “Notice” under Regulation E, therefore your investigation MUST begin on that date. You can request written confirmation of the claim but see above for more information on your options. 

6.    Do you return the transaction or investigate? Why? 
Your institution can try if you have a signed affidavit, but it won’t likely meet with positive results as the merchant will simply provide the language of their Terms and Conditions as proof of enrollment, so they will reject the Chargeback. 

7.    What gives the institution the right to investigate vs. return, if warranted? 
Regulation E. Yes, the institution could elect to attempt a return in the Card Network, but it’s doubtful that the chargeback will be successful in these conditions. Regulation E provides the institution with the opportunity to investigate the issue instead. 

8.    If you answered “return” above, what issue(s) can you see with this action?
See answer to #6

9.    If you answered “investigate” above, what is your first course of action? What are you looking for as part of the investigation? 
Pull the Terms and Conditions (T&C) of the service. These will likely document the agreement of a person who wants to obtain a “free” sample that will be enrolled in an ongoing subscription if they fail to cancel after X days. 

10.    Would your position / answer to this situation change if the transaction is via ACH debit vs. a debit card transaction? Why or why not? 
No change; failure to read the Terms and Conditions of a contract is not a valid return reason under the Card or ACH Network, and is not covered by Regulation E. The transaction was authorized. Failure to read the Terms and Conditions is not the institution’s issue. The consumer should take the issue up with the merchant / originator directly. 
The institution could help the account holder contact the Merchant / Originator but should not make any statements or promises that they will “take care of it” unless the institution is prepared to write-off the loss. 

11.    If the institution were to deny this, or a similar claim, what is required? 
A process consistent with §1005.11 Procedures for Resolving Errors including a final disposition letter, provisional credit if written confirmation of the error is provided, etc. Also, document the case! Your institution may need to substantiate a denial YEARS later. 


RESOURCES
To learn more, please visit: 12 CFR Part 1005 Regulation E 

ABOUT THE AUTHOR
Rayleen is the founder and owner of RP Payments Risk Consulting Services, LLC. based in Missouri. She is a nationally recognized payments risk and fraud expert who offers specialized consulting services, procedural and risk management reviews, and payments education. 

Rayleen’s specialized skill is delving into the world beyond the payment rules; areas where organizations often find themselves in positions of liability or loss with little to no clear guidance. 
She is an Accredited ACH Professional (AAP) and a Certified Enterprise Risk Professional (CERP) who has worked with all payment systems for nearly 20 years. Rayleen also holds a Bachelor’s of Science in Criminal Justice Administration and is a proud NEACH Affiliate Member.