Can I Spend Provisional Credit? And Should You?

A provisional credit is a temporary refund applied to a consumer’s account by a financial institution during the investigation of a disputed transaction. This temporary credit provides access to funds while the bank reviews a reported error or unauthorized charge. Its purpose is to offer immediate relief to the account holder, ensuring they are not financially burdened during the investigation period. The credit is not a final resolution and may be reversed depending on the investigation’s outcome.

What Provisional Credit Is

This mechanism is often mandated by consumer protection regulations, such as Regulation E, which covers electronic fund transfers. Under Regulation E, if a bank cannot complete its investigation into a reported error within 10 business days, it generally must provide a provisional credit to the consumer’s account.

The amount of the provisional credit typically matches the disputed transaction, including any applicable interest. A bank will usually notify the consumer within two business days after providing the provisional credit, informing them of the amount and date. This process allows the bank more time, potentially up to 45 or 90 days, to thoroughly investigate the claim while protecting the consumer’s access to funds.

Using Provisional Credit

While a provisional credit makes funds available in your account, allowing you to spend them, it is important to understand the implications. The funds are accessible for your use during the bank’s investigation. However, this credit is temporary, and its permanence depends entirely on the outcome of the dispute.

If the bank’s investigation concludes that the dispute is not in your favor, the provisional credit will be reversed. If you have already spent these funds, your account balance will be reduced, potentially leading to an overdraft or a negative balance. Financial institutions have the right to reclaim these funds if their investigation determines the transaction was legitimate or no error occurred.

Resolution of Your Dispute

The bank’s investigation into your disputed transaction will conclude with one of two outcomes, directly affecting the provisional credit. If the bank finds that an error occurred or the transaction was unauthorized, the dispute is resolved in your favor. In this scenario, the provisional credit previously issued becomes permanent. No further action is required from you regarding these funds, as they are now yours.

Conversely, if the bank determines the transaction was legitimate or that no error occurred, the dispute is resolved against you. In this case, the provisional credit will be reversed, and the funds will be debited from your account. Banks usually notify consumers of the investigation’s outcome within three business days of its completion. If the credit is reversed, the bank may also notify you in advance, sometimes five business days prior, that the funds will be debited from your account.