Each month, in our magazine Banking on BCC, the “Field Notes” section highlights some common errors and findings encountered by our Review Team in the field. In the October issue, we discussed reversing provisional credit.
When a financial institution completes an investigation into an electronic funds transfer (EFT) error and determines that either no error occurred or an error occurred in a manner or amount different from that described by a consumer, previously issued provisional credit may need to be reversed. When this arises, an institution has two options:
-
Immediate Reversal:
Notify the customer of the amount of provisional credit that was debited, indicating the date on which it was done. The notice must indicate that the institution …will honor checks, drafts, or similar instruments payable to third parties and preauthorized transfers from the consumer's account (without charge to the consumer as a result of an overdraft) for five business days after the notification. Keep in mind, only those items that would have been paid if the provisional credit had not been debited must be honored. [§1005.11(d)(2)]
OR
- Delayed Reversal:
Notify the customer that the provisional credit will be reversed …five business days from the transmittal of the notification specifying the calendar date on which the debiting will occur. [Commentary to §1005.11(d)(2) #1]
We recommend that institutions use the first option as it helps reduce the risk of the consumer closing their account or withdrawing funds to avoid a pending reversal. It is crucial, however, that an institution has systems and procedures in place to actually honor items during the five business days without assessing overdraft charges. While technically not required, we also strongly recommend providing notice of a provisional credit reversal in writing to demonstrate compliance.
Published
2025/10/21
