The Affinity Hub

If you work in payments or lending or with cards, you’ve likely heard these terms, and you’d be forgiven for thinking that they can be used interchangeably.
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In fact, the terms all have different implications and mean very different things from both a regulatory and operational perspective.
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Let’s define each one:

A customer complains that you debited their bank account via ACH twice by accident. This is an error.

A customer calls into their credit card company to say they don’t recognized a charge on their billing statement. This is a dispute.

A merchant calls the credit card company to reverse a charge for a previously authorized transaction. This is a refund.

A customer calls an initiate a former process to reverse a charge on their credit card and the company agrees that the charge should be reversed. This is a chargeback.
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Customer’s do not differentiate!

Regardless of what type of transaction it is, when your customers see a transaction they don’t recognize or agree with, they will most likely tell you about it and ask for their money back.

So, your first step is to always log these as a complaint as part of your complaints management policy.

For more on how to manage a complaint system, see our prior post “How to structure a customer complaints program”.
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But *YOU* do need to differentiate! Because…Reg E….
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The main reason to differentiate is to make sure you spot those very technical Reg E errors.

Regulation E is a complicated and technical regulation that deals with bank account errors.

It has requirements on what you must do if a customer calls about an error, how long you have to investigate it, when you must notify the customer of your investigation, and importantly, in what cases you need to provide provisional credit.
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We’ll cover Regulation E in Part 2 of this series. For now, let’s make sure we understand when Regulation E applies.

Generally, the best way to think about it is in terms financial product category.

Transactional error involving a person’s bank account through ACH or a debit card is a Regulation E situation.

What’s a transactional error? The classic case is debiting a person’s account twice or for the wrong amount.

But here are other examples where a mistake could implicate Reg. E:
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• A customer missing their direct deposit 2 days after payday.
• Auto-pay transactions from a customer’s bank account to pay for their credit card.
• A one-time debit from a customer’s bank account to pay their monthly installment.
• A customer request for a withdrawal of $200 from the ATM, but the ATM dispenses $100.
• A missing ACH credit to a customer’s bank account for a refund they received.
• A customer’s $10 P2P transfer to a friend to cover pizza that is processed for $100.
• A merchant’s double charge of a customer’s debit card for a transaction.
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For ACH transactions, you also have to follow those pesky NACHA rules. NACHA is an independent organization that manages the ACH network in the U.S.

So while violating a NACHA rule won’t get you in regulatory trouble, it could get you kicked of the ACH rails (which would make running your financial services business really hard).
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Here are examples of scenarios when Reg E wouldn’t apply:
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• A customer’s wire transfer from their checking account to pay one of their vendors.
• A merchant double charges a customer’s credit card for the same item.
• A customer sends a physical check to pay their monthly installment, and it gets lost in the mail.
• A customer sends a wire to pay their monthly loan payment and it is processed for the wrong amount.
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You’ll note checks and wire transfers are not covered by Reg E.

So, generally, errors involving ACH or debit cards = Reg E possibility.

Wires, checks, credit cards = no Reg E.
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Credit card disputes:
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If you issue credit cards, then you are fortunately out of the purview of Reg E, but you still have some rules that apply to you.
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The Fair Credit Billing Act gives consumers rights to dispute transactions on your credit card.
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You know how this works.: You check your Amex statement every month on a Sunday night with the beverage of your choice, you notice a charge you don’t recognize —most of the time, you need to try to remember where you were that day, what you were doing, and then you realize that, yes, you did randomly decide to make that random, impromptu and unnecessary purchase at store you walked by because it was a sunny day and you were in a good mood.
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But, once in a while, you really don’t recall the charge. So, you initiate a dispute. Once Amex receives that dispute, they check to see that it hasn’t been more than 60 days since the bill was issued (if its more than 60 days, they don’t need to investigate).
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After that, they run a process on their end. They’ll contact the merchant and say the customer is disputing the charge.
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If the merchant submits a response, they’ll review.
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If they think the merchant is right, the charge stays.
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If they think you’re right, you get a reversal.
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Generally, the credit card dispute process is much, much less technical.
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The process does not require provisional credit and there’s no strict timeline to resolve the error other than doing it as soon as possible.
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So, while credit cards are generally good about investigating your disputes, it is not for legal reasons. It is because of the card network rules (Visa, Amex, Mastercard, Discover). These are all independent businesses and they all have a vested interest in keeping their customers happy.
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So, there we go.
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If you deal with credit cards, you have a process to follow but it is much easier.
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If you deal with bank accounts and process ACH transactions or debit cards, get ready to immerse yourself in the wonderful and delightful world of Reg E timelines.
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More on that in Part 2!

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