Provisional credit under Reg E, explained
When the institution must give the money back before it knows the answer, how long it has, when it may take the credit back, and what the desk has to be able to show.
Provisional credit is the part of Regulation E that surprises people who have not run a dispute desk. When a consumer reports an error on an electronic fund transfer and the institution cannot finish investigating within ten business days (twenty, when the disputed transfer was made within thirty days after the account's first deposit), the institution must put the money back into the account within those ten business days, with interest where it applies, while it keeps investigating. Not when it agrees. While it is still deciding. The credit is provisional because it can be reversed if the investigation finds no error, or a smaller one, and reversing it correctly is a separate obligation with its own notice and its own timing.
That single rule is what turns Regulation E from a policy document into a scheduling problem. Every open claim is somewhere on a clock: the day the notice arrived, the day the ten business days run out, the two business days to tell the customer about the credit, the day the extended investigation closes, the three business days to report the result, and the five business days the institution keeps paying items after it takes a credit back. A desk that cannot see, for every open case, which of those days is next is not managing compliance. It is discovering it.
What is provisional credit?
Provisional credit is money a bank or credit union must put back into a customer's account, within 10 business days of a Regulation E notice of error, when it needs longer than that to finish investigating. It becomes final if the institution finds the error occurred, and it can be taken back, with notice, if the institution finds none. The rule is 12 CFR 1005.11(c)(2).
When is a bank required to give provisional credit?
When it cannot finish investigating within 10 business days of receiving the notice of error, or 20 business days when the disputed transfer was made within 30 days after the account's first deposit. The credit covers the amount of the alleged error, with interest where the account earns it, and the customer must have full use of the funds while the investigation runs. The exceptions are narrow. No credit is due if the institution asked for written confirmation of a phone notice and it did not arrive within 10 business days, or if the account is subject to Regulation T. On an unauthorized transfer, up to $50 may be held back where the customer's liability allows it. In each case the investigation still runs on time.
Does the bank have to tell the customer about provisional credit?
Yes. Within 2 business days of crediting the account, the institution must tell the customer the amount and the date of the credit.
How long does provisional credit take, and how long does it last?
The credit has to be in the account within 10 business days of the notice, or 20 in the new-account case. It lasts until the investigation ends: up to 45 calendar days from the notice, or 90 calendar days for a point-of-sale debit card transaction (in store, online, mail or phone order, but not an ATM withdrawal), a transfer initiated outside the United States, or a transfer made within 30 days after the account's first deposit. The institution then reports the result within 3 business days.
What is a provisional credit reversal, and when can it happen?
A reversal is the institution taking the provisional credit back. It can happen only after the investigation is finished and the institution has found no error, or an error for a smaller amount. When it debits the account, it must tell the customer the date and amount of the debit, and that for five business days it will pay the checks and preauthorized transfers it would have paid had the credit not been taken back, with no overdraft fee as a result. It may instead give that notice in advance, stating the calendar date, five business days later, on which the debit will happen; it then cannot debit before that date. When the institution finds no error, its written explanation must also tell the customer they may ask for the documents it relied on.
When does provisional credit become permanent?
When the institution finds that the error occurred and reports the result. The report must tell the customer that the provisional credit has been made final. After that, the credit cannot be taken back, even if the institution later learns that the merchant refunded the customer or that the transaction was authorized.
What happens if the customer spends the provisional credit?
The customer is entitled to spend it: the rule gives full use of the funds during the investigation. If the institution later reverses the credit, the five business days of paid items protect payments the customer has already made from those funds, and the customer is not charged overdraft fees for them.
Is there provisional credit on credit cards?
Not under Regulation E. Credit card billing errors fall under Regulation Z, which does not require provisional credit. Instead, the customer may withhold the disputed amount while the card issuer investigates, and the issuer may not try to collect it in the meantime.
What this looks like on a desk with volume
One clock is a diary entry. Hundreds of open claims across card, ACH and person to person payments, each on its own clock, is a workflow problem. The rule fits on a page. The work is knowing, every morning, which claims cross a deadline today and which notice each one needs.
What does a dispute workflow have to record for each clock?
For each claim: the date the notice arrived and the event that started each clock; the due date of every step; the date each step happened and who or what did it; a copy of each notice sent to the customer and the date it went out; and, for a reversal, the date of the debit and the five business days that followed. Regulation E requires evidence of compliance to be kept for at least two years.
Does Regulation E apply the same way to ACH and person to person claims?
Yes, when the transfer goes to or from a consumer account. The obligation to the customer does not wait for the money to come back through the ACH return process or the payment network. One difference: the 90 day period for point-of-sale debit card transactions does not reach ACH or person to person claims; only the foreign and new-account cases do.
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