When Does Provisional Credit Become Permanent?

When a consumer identifies an unfamiliar or incorrect transaction on their account, a financial institution may offer provisional credit. This temporary measure provides immediate relief while the bank investigates the disputed charge. This article clarifies the process and timing for provisional credit to become a permanent part of a consumer’s account.

Defining Provisional Credit

Provisional credit is a temporary credit applied to a customer’s account by a financial institution, such as a bank or credit union. This occurs when a customer disputes a transaction, like an unauthorized charge or a billing error, and the institution begins an investigation. Its primary purpose is to offer immediate access to funds, ensuring the customer is not unduly inconvenienced while the transaction’s legitimacy is determined. The credit is not a final resolution; instead, it acts as a placeholder, allowing the customer to use the disputed amount during the review period.

The Investigation Process

Upon receiving a dispute claim, a financial institution initiates an investigation to determine the validity of the reported error. This process involves a comprehensive review of records, including transaction details, account history, and relevant communications. Banks may also reach out to merchants or third parties to gather additional evidence. The investigation examines whether the charge was authorized or if a billing mistake occurred.

The customer’s active participation is a significant aspect of this investigation. Consumers are typically required to provide detailed information about the disputed transaction, including specific dates, amounts, and descriptions of why the charge is believed to be erroneous. Financial institutions may also request supporting documentation. Providing this information promptly helps the bank ensure a more efficient and accurate resolution of the dispute.

Regulatory Timelines for Decisions

The timeline for provisional credit to become permanent is governed by consumer protection regulations, primarily Regulation E, which applies to electronic fund transfers. Under Regulation E, financial institutions generally have 10 business days from receiving an error notice to complete their investigation. If the investigation cannot be concluded within this initial 10-business-day period, the institution may extend it, but only if it provisionally credits the consumer’s account with the disputed amount within those 10 business days.

Once provisional credit is provided, the financial institution can take longer to complete its investigation. For most electronic fund transfers, the extended investigation period can last up to 45 calendar days from the error notice date. For disputes involving new accounts, point-of-sale debit card transactions, or foreign ATM withdrawals, the investigation period can extend up to 90 calendar days. If the investigation concludes an error occurred and finds in the consumer’s favor within these regulatory timeframes, the provisional credit automatically becomes permanent. The bank must then notify the consumer of this decision, typically within three business days after completing the investigation.

Outcomes of the Investigation

Upon the conclusion of the investigation, there are two primary outcomes for the provisional credit. If the financial institution determines that an error occurred, or that the transaction was indeed unauthorized, the provisional credit becomes permanent. The financial institution confirms that the funds are rightfully theirs, and no further action is required from the customer regarding that specific dispute. The bank will generally notify the customer of this final decision.

Conversely, if the investigation concludes that the disputed transaction was authorized or that no error occurred, the provisional credit will be reversed. This means the temporary funds previously credited to the account will be debited back by the financial institution. When a provisional credit is reversed, the bank is typically required to provide a clear, written explanation for its decision, often detailing the findings that led to the reversal. Consumers also have the right to request copies of the documentation the bank used to make its determination, allowing them to understand the basis for the reversal.