Unauthorized Transactions: The Bank’s Investigation Process

Florence Desiata

You purchased an item online using your credit card, but when you get your bill, you suddenly see payments you did not make. Unauthorized transactions like this can be frustrating and time-consuming to resolve, but the good news is you can rely on banks to investigate them and get your money back.

In this article, you’ll learn how banks investigate unauthorized transactions. 

Steps on How Banks  Investigate Unauthorized Transactions

How banks investigate potentially fraudulent transactions can vary, depending on their internal policies and process. Here’s a general overview of what to expect: Here’s an overview of the general process of how banks investigate unauthorized transactions:

Step 1: Customer Complaint 

Most banks begin their investigation when a customer files a complaint. The cardholder might claim that their order did not arrive or meet their expectations or that a transaction was unauthorized.

Step 2: Investigator Examination

The bank will call personnel trained to handle potential fraud, such as an internal credit fraud investigator. They will examine the cardholder’s claim.

Step 3: Evidence Gathering

The bank will gather evidence about the cardholder’s complaint, including: 

  • Copy of emailed invoices
  • Transcripts of all customer service communications
  • Time stamps
  • Location data
  • IP addresses 

They can use these details to prove whether or not the customer was involved in the transaction.

Step 4: Examining the Transaction Based on the Cardholder’s Claim

The investigator then reviews the transaction data and evaluates whether the customer’s claim is reasonable.

Step 5: Making a Decision

The card issuer determines whether to reject the customer’s inquiry or file a chargeback on their behalf. If it’s the latter, the bank issues a temporary or provisional credit to the cardholder. Doing so will cover their losses, which the bank will later ask the merchant.

The steps are clear, but sometimes it can get complex, especially when coordinating with the merchant involved. What is the decision-making that goes behind accepting a complaint?

What Influences the Bank to Reject or Allow the Complaint? 

The bank must be thorough about allowing or rejecting customer inquiries. These are the parameters that help them decide:

  • Whether the physical card was present during a transaction or not
  • Whether the transaction fits the customer’s usual purchasing habits
    • whether they have been a customer of the merchant before
  • If the charge was friendly fraud. Some examples are:
    • end of a free trial period subscription
    • an unsupervised child making in-app purchases

Cases of friendly fraud are harder to prove since merchants are at the mercy of cardholders and card issuers. Merchants must take it upon themselves to prove that a customer’s claim is wrong, and banks tend to side with their customers when in doubt.

If the merchant can prove the transaction was legitimate and the cardholder’s claims are false, they can get their money back.

Frequently Asked Questions

What is friendly fraud?

Friendly fraud happens when a cardholder accidentally or intentionally files a chargeback on a legitimate transaction instead of first trying to obtain a refund from the merchant. 

What are chargebacks?

Customers file chargebacks when they feel a transaction is unfair or invalid. Some legitimate examples are when an item or service is not delivered or the same as advertised, a merchant did not cancel a recurring payment upon a customer’s request, or a transaction was not authorized.

How long do investigations take?

Evaluating, responding to, and resolving complex transactions can take 30 to 90 days.

As a cardholder, will the bank charge you during the investigation?

The bank can only hold you liable for up to $50 if your physical card is lost or stolen, or if you notify them within two days of the transaction. If you still possess the card, your liability is $0. If you report the suspected fraud after two days, but within 60 days, your liability can go up to $500. After 60 days, unfortunately, you will be liable for all transactions. 

Final Thoughts

With a massive increase in online shopping ever since the height of the pandemic, credit card fraud has been on the rise, too. As such, customers need to be vigilant of their transactions.

Banks will be on your side during these situations because they must care for you as their customers. However, knowing their safeguards to prevent unauthorized transactions is advisable.

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