What Is a Card Provisional Credit and How Does It Work?

A provisional credit is a temporary credit applied to a cardholder’s account by a financial institution, such as a bank or credit card issuer. It is issued when a cardholder reports a disputed transaction or an error on their statement. Its purpose is to provide immediate, temporary access to funds while the financial institution investigates the issue. Provisional credits are not permanent and can be reversed based on the investigation’s outcome.

When Provisional Credit is Issued

Provisional credit is often issued in situations involving unauthorized transactions, billing errors, or merchant disputes. For instance, if a cardholder identifies a transaction they did not authorize, or a billing error like a duplicate charge, a provisional credit may be applied. This mechanism is a consumer protection measure mandated by federal laws.

For debit card transactions, the Electronic Fund Transfer Act and Regulation E govern error resolution. If a financial institution cannot complete its investigation into a reported error within 10 business days, it generally must provide a provisional credit to the consumer’s account for the amount of the alleged error. This allows the cardholder to use the disputed funds while the investigation continues, which can extend up to 45 days, or even 90 days for certain cases like new accounts or point-of-sale transactions.

For credit card disputes, the Fair Credit Billing Act provides similar protections. This act applies to open-end credit accounts and covers billing errors such as unauthorized charges, incorrect transaction amounts, or charges for goods not received. While the Act does not explicitly mandate provisional credit, card issuers often provide it as common practice to ensure consumer access to funds during the dispute resolution process. This temporary credit helps to mitigate the impact of the disputed charge on the cardholder’s available credit or balance.

Initiating a Dispute and Providing Information

Cardholders should promptly report issues to initiate a dispute that may lead to a provisional credit. Many financial institutions allow reporting online, via phone, or through written correspondence. While phone reporting is possible, sending a written notice, especially for credit card billing errors, is generally recommended to protect consumer rights.

Cardholders should gather specific details about the disputed transaction to support their claim. This includes the transaction date, merchant’s name, exact charge amount, and a clear description of the dispute. Any supporting documentation, such as receipts, invoices, or records of communication with the merchant, should also be provided.

The Investigation and Resolution Process

Once a cardholder has initiated a dispute and provided the necessary information, the card issuer begins its investigation. For debit card errors, the financial institution investigates the claim. If the investigation cannot be completed promptly, a provisional credit is provided.

For credit card disputes, the card issuer must acknowledge receipt of the dispute in writing within 30 days. The issuer then has two billing cycles, or a maximum of 90 days, to resolve the dispute. During this period, the card issuer cannot attempt to collect the disputed amount or report it as late to credit bureaus.

The investigation involves reviewing transaction records, communicating with the merchant, and assessing all evidence. The provisional credit has two possible outcomes.

If the card issuer determines the dispute is valid, the provisional credit becomes permanent, and the disputed amount is removed from the cardholder’s balance. If the investigation concludes the charge was legitimate, the provisional credit will be reversed, and the amount debited from the cardholder’s account. If the provisional credit is reversed, the financial institution must generally provide notice to the consumer.