Most financial transactions occur securely, but occasionally, despite your best efforts, you may discover an unauthorized transaction. When an unauthorized transaction is reported, a bank typically gathers information, analyzes the incident, and makes a determination about what happened and what the next steps will be.
Learn more about the process here.
Table of Contents
- What Qualifies as an Unauthorized Transaction?
- What Should You Do If You Find an Unauthorized Charge?
- How to Report Fraudulent Charges to Your Bank
- The Bank Fraud Investigation Process: A Step-by-Step Breakdown
- What Are Your Rights Under Regulation E?
- How Can You Proactively Prevent Unauthorized Transactions?
Key Points
• When an unauthorized transaction is reported, a bank gathers information, analyzes the incident, and determines the next steps.
• Banks may place a hold on the card and/or account to prevent further fraudulent activity and may issue a temporary credit during the investigation.
• Investigators collect details like transaction date, time, amount, and location, and also analyze other financial patterns and consumer behavior.
• Banks must investigate reported fraud within 10 business days (or 20 days for new accounts), and correct errors promptly.
• If an investigation exceeds 10 or 20 days, a provisional credit, minus $50, must be issued to the customer while it continues.
What Qualifies as an Unauthorized Transaction?
Unauthorized transactions are any bank account transactions that the account holder did not approve of. It could be a payment that was mistakenly charged to your account, but it could also indicate fraudulent activity. For instance, a criminal might write a fraudulent check from your checking account or use your debit card to make an unauthorized withdrawal from your bank account without your knowledge.
There are a number of different methods fraudsters may use to try to get access to your checking account, including:
• Stealing and “washing” a check (meaning erasing the original information and adding fraudulent details)
• Stealing your debit card (or finding and using a lost debit card)
• Stealing your information with card skimmers and hidden cameras
• Conducting a scam in which they try to convince you to share your confidential account info.
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What Should You Do If You Find an Unauthorized Charge?
If you find an unauthorized charge, it’s important to take action as quickly as possible. Contact your bank or card issuer’s fraud department, and see what next steps are recommended (more details on this below).
Depending on the circumstances, you may want to freeze or lock your credit as well. You should additionally consider reporting the incident to the Federal Trade Commission, or FTC (ReportFraud.ftc.gov) and potentially the Internet Crime Complaint Center (IC3.gov).
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How to Report Fraudulent Charges to Your Bank
If you notice a transaction in your bank account that you did not authorize (perhaps a bank alert that you set up informed you), it’s crucial that you contact your bank’s fraud department immediately. The phone number is typically on the back of your debit card, or some banks may offer the option of messaging on their website or in app. A representative can walk you through next steps, such as:
• Canceling or freezing your debit card
• Ordering a new card
• Updating your bank account password (and ideally your email password as well)
• Starting a formal fraud investigation with the bank
In some cases, the bank’s representative may recommend opening a new bank account to further protect your finances.
Worth noting: If the bank’s fraud detection software notices a suspicious transaction, the bank will generally contact you via text, email, or phone call to verify the transaction. If you don’t recognize the transaction, the bank will begin its fraud investigation.
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The Bank Fraud Investigation Process: A Step-by-Step Breakdown
Whether you as the consumer bring the unauthorized transaction to the bank’s attention or the bank’s fraud detection system finds the issue, the bank or credit union will typically investigate as follows:
Step 1: The Bank Places a Hold on Your Card and Issues a New One
Typically, when there is an unauthorized transaction reported, your bank will place a hold on your card so no further, potentially fraudulent transactions can occur. It will also typically issue a new card, which allows you to regain control of your financial transactions. If there was an issue such as an unauthorized debit directly from the account, the bank may advise putting a hold on the account and opening a new one.
Step 2: You May Receive Provisional Credit for the Disputed Amount
Generally, a bank will issue a temporary credit for the transaction in question as it investigates. If it determines that the transaction was indeed unauthorized, this will become a permanent credit.
Step 3: The Bank Gathers Evidence From You and the Merchant
As the investigation gets underway, the bank will take information from you and the merchant involved. These details may include the date, time, and amount of the transaction and whether it happened online or in person. They’ll also analyze other transaction patterns and consumer behavior. This additional information can help them establish what happened.
Step 4: A Final Decision Is Made and Communicated to You
Based on these details, the bank should be able to determine if the transaction was unauthorized or if there are fraudulent charges — and if the merchant has any blame in the scenario. The bank may or may not reimburse the customer, depending on their findings.
Further, the bank may pursue charges against any criminal involved, if applicable and possible. The bank will also file a suspicious activity report (SAR) if that is deemed appropriate and hand the case over to the authorities.
Recommended: What Can Someone Do With Your Bank Account and Routing Number?
What Are Your Rights Under Regulation E?
Regulation E is a federal rule that allows for implementation of the Electronic Fund Transfer Act (EFTA). It is designed to protect consumers in electronic transactions, like debit card purchases, ATM transactions, direct deposits, and P2P app transfers. (This is separate from the FDIC, which protects you in the very rare instances of a bank failure.)
Specifically, Regulation E establishes rules that guide error resolution, fraud, and liability. By doing so, Regulation E ensures that banks provide clear disclosures and follow fair processes for disputed transactions.
Here are some important details about timing under Regulation E:
• When consumers report potential fraud, banks — whether a traditional or online bank — generally have 10 business days to investigate the transaction (20 business days if the account was opened in the last 30 days).
• Once the bank has determined there was an error, it has only a single day afterward in which to correct it.
• If the bank can’t complete its investigation within 10 or 20 business days, it must issue the consumer a credit to the account for the disputed amount, minus $50, while the investigation continues. Usually, the bank or credit union has up to 45 days to finish their investigation and share their findings.
• In some cases (such as if the incident occurred in a foreign country), it may take up to 90 days to achieve a final resolution.
How Can You Proactively Prevent Unauthorized Transactions?
While no one can with absolute certainty prevent an unauthorized transaction from ever taking place, there are valuable steps you can take to lower your risk, whether you’re conducting and online . These include:
• Using unique, complex passwords. Your email, financial accounts, and any other online accounts should have unique and complex passwords. These should be updated often and never reused or shared. You might want to consider using a password manager service to assist with this.
• Turning on alerts. Bank alerts can be helpful in spotting fraud in real time. Turn on all relevant alerts available in your bank’s mobile app or on its website. You can also monitor your transactions in app or on the site and balance your checking account regularly to help you identify unauthorized charges.
• Using all the security measures available to you. Multifactor authentication (MFA) and biometric screening (such as facial recognition) add extra layers of protection on top of passwords.
• Not sharing your PIN. Think of a unique PIN for your debit card, and don’t share it with anyone.
• Protecting your wallet. Always be smart about where you stash your wallet. Also consider using an RFID wallet. This can block contactless scanning of your cards’ chips, which hold your confidential banking details. Only carry the cards you need; keep the rest at home in a safe.
• Being careful at ATMs and points of sale. Make sure no one is watching you punch in your PIN when making a transaction (they could steal your card and then use it). Always check ATMs and gas pumps for signs of card skimmers, or devices that fit over the slot where you dip your card and steal your credentials.
• Recognizing phishing scams. Fraudsters are always finding new ways to get account information. Educate yourself about the latest bank and phishing scams, and always be wary when someone asks for your account information. Just because someone calls or texts saying they are “from your bank” doesn’t make it true.
The Takeaway
Just as it’s important to take basic security measures to prevent your financial information from getting into the wrong hands, it’s also crucial to act quickly if you detect an unauthorized charge on your debit card or a fraudulent transaction in your account. Banks must take reasonable steps to investigate unauthorized transactions and notify you of the results in a timely manner. In addition, many banks have state-of-the-art security features and alerts to help protect your finances.
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FAQ
How long does a bank have to investigate a fraud claim?
In most scenarios, banks have 10 business days to investigate a fraudulent transaction after you report it. If they can’t finish it in that timeframe, they may have to credit your account while they continue the investigation. In total, banks and credit unions have 45 business days to resolve an issue, except for some specific exceptions (like if the fraud occurred in another country).
What kind of evidence do banks look at during an investigation?
When investigating unauthorized transactions, banks typically take details about time, place, and amount from both the account holder and the merchant. They also look at consumer behavior and past transaction data as they work to establish what happened.
Can a bank deny an unauthorized transaction claim?
Yes, after an investigation, a bank can deny an unauthorized transaction claim. If they do so, they must provide a valid reason such as the account holder having reported the transaction too late, the transaction having actually been authorized, or the bank client having failed to take adequate measures to protect their account.
Will reporting a fraudulent charge affect my credit score?
Reporting a fraudulent transaction or charge should not negatively impact your credit score. It might, however, help protect your score by removing incorrect data from your credit history.
What happens if I accidentally reported a legitimate transaction as fraud?
If you accidentally report a legitimate transaction as fraud (say, you completely forgot about an online purchase), it’s important to contact your bank or card issuer immediately to cancel the report. A single instance like this shouldn’t lead to any further problems as long as you notify your financial institution as quickly as possible with the correct information.
How can AI improve fraud detection for banks?
AI can improve bank fraud detection with its power and speed. It can analyze huge amounts of data in real time to spot patterns and identify evolving fraud tactics. This can also minimize false alarms for consumers.
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