How long does a temporary credit last?

The only guarantees in life, we’re told, are death and taxes—chargebacks did not make the list. That means there’s always a chance to reverse a chargeback when it first appears, which puts banks in a tough spot. Customers want their money back right away, but the bank knows that the process needs time to play out.

The solution they’ve come up with is to issue a provisional credit to the customer’s account, which becomes permanent only when and if the chargeback is accepted. What are provisional credits, and how do they function in the context of chargebacks?

How long does a temporary credit last?
The right to dispute a fraudulent or erroneous credit card charge is enshrined in the law, but it’s also an important element of customer service in the banking industry. As fraud rates have gone up, customers have come to expect dispute processes to be fast, convenient, and hassle-free. In particular, when they dispute a charge, they want their money back right away—but banks understand that many chargebacks end up getting reversed.

In fact, the policy for many banks is to submit disputes when the customer insists, even if they know the dispute is not likely to withstand a challenge from the merchant.

To keep these situations from becoming even more messy and complicated, banks issue provisional credits immediately upon filing the dispute. This makes the funds available to the customer, with the caveat that they can be clawed back if the chargeback is successfully represented. This satisfies the customer’s need for immediate recompense while leaving the door open for invalid disputes to be corrected and reversed.

What Is a Provisional Credit?

Provisional credits are funds that a bank adds to a customer’s account for a transaction that may or may not become permanent. Customers can spend the funds from the provisional credit, but the bank can take them back at any time, even if it overdrafts the account.

One way to look at provisional credits is to consider them as sort of the opposite of a temporary hold. Whereas a temporary hold restricts funds that the bank expects will need to be withdrawn, a provisional credit is like an advance on money that the bank expects to be deposited.

Why Are Provisional Credits Given Out?

Banks can issue provisional credits for any situation where they might be useful. Provisional credits may be issued for pending transactions that haven’t been settled yet, but the most common use of provisional credits is to make the disputed funds from a chargeback immediately available to the cardholder. The chargeback process can go on for quite a while, especially if the merchant fights the chargeback.

While the card networks do impose limited timeframes in which to file disputes and respond to them, no bank customer wants to hear that they’ll have to wait weeks or even months to get their money back from a fraudulent transaction.

Banks use provisional credits to placate these customers, although they do warn them that the funds will be yanked right back out of their accounts if the chargeback is not upheld.

How Do Provisional Credits Affect Merchants?

Provisional credits are between the bank and its customer. They don’t directly affect merchants, and merchants will usually have no way of knowing when a provisional credit has been issued as a result of a chargeback.

How long does a temporary credit last?
Indirectly, however, a provisional credit means that a merchant is in danger of losing revenue. Every chargeback sets off a chain reaction of sorts as the liability for the disputed funds makes its way back to the party that must ultimately bear it: the merchant.

  1. The customer sees a charge that they believe they are not obligated to pay, so they dispute it with their issuing bank.
  2. The issuing bank gives the customer a provisional credit out of their own funds, but they are not liable for chargeback losses. They inform the acquiring bank of the chargeback and ask them to return the disputed funds.
  3. The acquiring bank returns the disputed funds to the issuer and deducts the cost from the merchant’s account.
  4. The merchant can’t pass liability on to anyone else, so they’re stuck with the revenue loss from the chargeback—unless they can successfully dispute it.

The merchant only gets looped into the process at step three, at which point the provisional credit has already been granted by the issuer.

What Can Merchants Do to Prevent Provisional Credits from Becoming Permanent Chargebacks?

When you receive notice of a chargeback, you don’t need to worry about whether or not the cardholder was given a provisional credit. Your first priority is to investigate the dispute claims and determine whether or not the chargeback is valid. If it is—for instance, if it’s a true fraud chargeback—then the best thing to do is accept it, make a note of how it occurred, and take steps to protect yourself from similar chargebacks in the future.

If you believe that the chargeback is not valid, the next thing to do is look up the reason code and see what evidence is required to get the chargeback reversed. Then, you can consult your records and pull whatever documents are needed. You must also prepare a rebuttal letter that briefly explains why the chargeback is invalid and what evidence you have to prove it.

Once you’ve completed these preparatory steps, you can engage in chargeback representment. You resubmit the charge along with your rebuttal letter and evidence, and hopefully, the issuing bank will side with you and reverse the chargeback.

The process doesn’t necessarily end here. If either party is unhappy with the issuer’s verdict, it can be brought before the card network for arbitration. In terms of the chargeback process, their decision is final.

 Conclusion

There is an understandable customer service need for provisional credit, but it can encourage bad behavior. Once cardholders know that they can get a provisional credit almost immediately upon disputing a charge, they are enticed to dispute charges instead of going through the longer process of corresponding with the merchant to request a refund.

How long does a temporary credit take to post?

How long will it take to receive a temporary credit? If you're eligible, you can expect this credit by the end of the 10th business day (20th business day for new accounts) after filing your dispute.

How long does a temporary credit card last?

Temporary credit cards are valid for 14 days after an account is approved or until the new plastic credit card has been received and activated.

What does it mean when your account is temporarily credited?

A provisional credit is a temporary credit applied to your credit card account. Provisional credits typically occur when your bank is attempting to verify a charge on your account or resolve a credit error or potentially fraudulent charge made in your name.

Can I spend a temporary credit?

What Is a Provisional Credit? Provisional credits are funds that a bank adds to a customer's account for a transaction that may or may not become permanent. Customers can spend the funds from the provisional credit, but the bank can take them back at any time, even if it overdrafts the account.