What Happens If You Spend Provisional Credit?

When a customer disputes a transaction, banks often provide what is known as provisional credit. This temporary financial adjustment allows individuals to access funds while the financial institution investigates the claim.

Understanding Provisional Credit

Provisional credit is a temporary credit applied to a customer’s account by a financial institution. Banks issue this credit when a customer reports an unauthorized or erroneous transaction, such as a fraudulent charge or a billing error. It serves as an interim measure, providing immediate access to the disputed funds while the bank conducts its investigation.

This credit is not a final resolution; it is subject to reversal depending on the investigation’s outcome. Its purpose is to ensure the customer has access to funds during the potentially lengthy dispute resolution process. Provisional credit typically equals the amount of the disputed transaction.

The Bank’s Investigation Process

After a customer reports a disputed transaction and provisional credit is issued, the bank initiates an investigation to determine the claim’s legitimacy. This process involves reviewing transaction details, analyzing account activity, and often communicating with the merchant involved. Banks may also request additional information or documentation from the customer to support their claim.

For electronic funds transfers, such as debit card transactions, the investigation process is governed by Regulation E. Under Regulation E, banks generally have 10 business days to complete their investigation. If the investigation requires more time, the bank can extend it, typically up to 45 calendar days, and sometimes up to 90 days for specific transaction types. During this extended period, the provisional credit remains on the account, and the bank must notify the customer of the provisional credit within two business days.

Outcomes of the Provisional Credit Investigation

The bank’s investigation into a disputed transaction has two outcomes. If the bank determines that the transaction was unauthorized, erroneous, or fraudulent, the provisional credit becomes permanent. In this scenario, the customer is allowed to keep the funds, and the matter is considered resolved.

If the bank concludes that the transaction was legitimate, authorized by the customer, or not erroneous, the provisional credit will be reversed. The bank will deduct the provisional credit amount from the customer’s account. The bank is generally required to notify the customer of this outcome.

Consequences of Revoked Provisional Credit

When provisional credit is revoked, and a customer has already spent those funds, the account balance will decrease by the amount of the reversed credit. This can lead to the account having a negative balance, potentially triggering a series of financial repercussions.

One common consequence is the imposition of overdraft fees if the account goes into a negative balance. Overdraft fees can range from $27 to $35 per incident. Subsequent transactions may be declined, leading to non-sufficient funds (NSF) fees, which range from $18 to $32 per occurrence. The customer will owe the bank the amount of the revoked credit, along with any accrued fees.

In situations where a negative balance persists or is repeatedly incurred, banks may pursue collection efforts to recover the owed funds. In extreme cases of unrecovered funds or persistent negative balances, the bank might close the account. An account closure due to negative balances can be reported to specialized consumer reporting agencies, potentially making it difficult to open new bank accounts in the future for several years.