A temporary credit applied to an account while a financial institution investigates a reported error or unauthorized transaction is termed provisional credit. This temporary credit restores the account balance as it was before the disputed activity. For example, if a customer reports a $500 unauthorized charge, the bank might apply a $500 provisional credit while investigating.
This mechanism offers a significant consumer protection, ensuring immediate access to funds during the error resolution process. Its origin lies in federal regulations designed to protect consumers from financial hardship caused by disputed transactions. These rules mandate specific timelines and procedures that financial institutions must follow.
