How U.S. Payments Really Work Part 19
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How U.S. Payments Really Work Part 19
‹‹ Series Overview ››

Contested Returns: When Customers Dispute an ACH Debit

How to handle consumer-initiated disputes, Reg E claims, and the investigation workflows that keep customers and regulators happy.

Suma Manjunath
Author: Suma Manjunath
Published on: October 15, 2025

Contested Returns

For: Payments engineers, fintech developers, ACH operations teams
Reading Time: 14 minutes
Prerequisites: Understanding of ACH returns (R01-R85), NACHA rules, Regulation E (12 CFR 1005)
Why now: Contested returns are the intersection of customer service, regulatory compliance, and operational complexity. Systems that handle them poorly lose customer trust and invite regulatory scrutiny.

TL;DR:

⚠️ Disclaimer: All scenarios, accounts, names, and data used in examples are not real. They are realistic scenarios provided only for educational and illustrative purposes.

Problem Definition

The challenge: A customer disputes an ACH debit on their account, which may result in the bank issuing a return (R10, R11, etc.). They claim:

Important: Not all customer complaints are Regulation E disputes. Reg E applies specifically to unauthorized transactions and errors (wrong amount, computational errors). General dissatisfaction, service quality issues, or “buyer’s remorse” are customer service matters, not Reg E claims.

Now your system must investigate, respond, and resolve—often under tight regulatory windows. Get it wrong, and you face return disputes, Reg E fines, or loss of banking partnerships.

Who faces this: Any payments platform that processes ACH transactions, especially B2B and marketplace platforms where authorization disputes are common.

Cost of inaction:

Why standard solutions fail: Most payment platforms treat returns as “final.” They don’t model the consumer dispute workflow—the investigation, evidence gathering, and rebuttal process that keeps things fair and compliant.

Solution Implementation: Building a Contested Return Workflow

ℹ️ Note: Customers initiate the dispute claim. The RDFI (customer’s bank) originates the ACH return entry when appropriate. Your company must provide evidence, investigate internally, and coordinate resolution—you can’t hide behind the bank.

Understanding Contested Returns

The Actual Flow

flowchart TD
  A["Originator (Business) sends ACH debit to Customer"] --> B["RDFI (Customer's Bank) posts debit to customer account"]
  B --> C["Customer notices debit on statement/account activity"]
  C --> D["Customer disputes debit with their bank (claims unauthorized/error)"]
  D --> E["RDFI obtains written statement and issues ACH return (R10/R11/etc.)"]
  E --> F["Originator (Your Platform) receives ACH return from ODFI"]
  F --> G["Customer may also contact originator directly with dispute"]
  G --> H{"Platform investigates: Is transaction authorized and valid?"}
  H -->|"Yes, have proof of authorization"| I["Provide evidence package to ODFI&#59; work with RDFI to resolve"]
  H -->|"No, cannot prove authorization"| J["Accept return&#59; credit customer&#59; document issue"]
  I --> K["Document investigation, evidence, and final outcome&#59; close case"]
  J --> K

💡 Tip: Model your internal entities directly from this flow: ACH debit, ACH return, customer dispute, investigation, resolution. That makes it much easier to automate deadlines and reporting.

Types of Contested Returns

Scenario Why It’s Contested What Customer Says Your Response
Authorization Dispute Customer claims they did not authorize the debit (Reg E claim) “I never authorized this transaction!” Gather proof of authorization (ACH mandate, recurring agreement, IP logs, device fingerprint, etc.) - formal Reg E investigation required
Duplicate Return Same return effectively processed twice “Why was I returned twice?” Check for duplicate return entries; if confirmed, reverse one entry and explain
Merchant Recognition Customer doesn’t recognize merchant descriptor “I don’t recognize ‘ACME DIGITAL SVCS’ - is this fraud?” Provide authorization proof and documentation to customer; customer works with their bank to reverse fraud claim
Services Not Rendered Goods/services never received “I paid but never got the product!” Treat as goods-and-services dispute; not strictly an ACH return dispute, but workflows overlap
Timing Issue Return issued outside normal window “Why am I being returned 10 days later?” Verify NACHA compliance; if violated, escalate to ODFI and document
Amount Mismatch Return amount doesn’t match original debit “I was debited $1,000 but returned $500” Reconcile with bank; investigate partial returns and ledger mismatches

ACH Return Timing Windows

Return Type Time Window Notes
Operational Returns (R02, R03, R04) 2 banking days from settlement Standard NACHA window
Unauthorized Consumer Debits (R10, R11) Up to 60 days from settlement Requires written statement/affidavit
Administrative Returns (R08, R09) Varies by reason code Check NACHA rules for specific codes

Critical: Unauthorized consumer debit returns (R10, R11) have extended windows, which is why maintaining proof of authorization for 60+ days post-settlement is essential.

Regulation E & Reg E Disputes

What Is Reg E?

Regulation E (12 CFR 1005) protects consumers in electronic fund transfers. For contested returns:

Reg E Dispute Process

flowchart TD
    A["Customer files Reg E dispute with their bank (within 60 days of statement)"] --> B["Consumer's FI begins error-resolution&#59; investigates (10 business days) and may provide provisional credit if extending"]
    B --> C["RDFI requests Proof of Authorization (POA) from ODFI&#59; NACHA requires response within 10 banking days"]
    C --> D["You (Originator/Platform) gather authorization records, transaction history, system logs"]
    D --> E["Submit evidence package to your ODFI quickly (NACHA POA window: 10 banking days)"]
    E --> F["Consumer's FI completes investigation (10 business days, extendable to 45/90 days)"]
    F --> G{"FI determination: Was transaction authorized?"}
    G -->|"Yes, sufficient proof provided"| H["FI may debit back provisional credit (with proper notice)&#59; originator upholds transaction"]
    G -->|"No, insufficient proof or error confirmed"| I["FI makes provisional credit permanent&#59; originator absorbs loss"]
    H --> J["Document outcome for compliance records"]
    I --> J

Real-World Scenarios

Scenario 1: Authorization Dispute (Recurring Payment)

Situation: A SaaS company (the originator) debits a customer monthly for their subscription. In month 6, the customer contacts their bank claiming they never authorized recurring debits. After obtaining a written statement, the RDFI issues an R10 (Originator Not Known / Not Authorized) return. Customer disputes: “I never authorized recurring payments! This is fraud!”

What happens:

Your investigation:

Outcome:

# Scenario 1: Recurring Payment Authorization Dispute
class RegEDisputeHandler
def initialize(bank_client, auth_repository)
@bank = bank_client
@auth_repo = auth_repository
end

def investigate_recurring_dispute(customer_id, debit_amount_cents, debit_date)
puts "🔍 Investigating Reg E dispute for recurring payment"

    # Step 1: Find the original authorization
    auth_record = @auth_repo.find_by_customer_and_type(customer_id, 'recurring')

    unless auth_record
      puts "❌ No authorization record found. Dispute will likely be lost."
      return {
        status: 'unresolved',
        recommendation: 'reverse_and_credit'
      }
    end

    # Step 2: Check if authorization was valid on the debit date
    auth_valid = auth_record.signed_at < debit_date && !auth_record.canceled?

    puts "✅ Authorization record found:"
    puts "   - Signed: #{auth_record.signed_at}"
    puts "   - Type: #{auth_record.auth_type}"
    puts "   - Status: #{auth_valid ? 'VALID' : 'INVALID/EXPIRED'}"

    # Step 3: Check payment history for pattern of recurring payments
    payment_history = @auth_repo.find_payments_by_customer(customer_id)
    previous_successful = payment_history.count { |p| p.status == 'completed' }

    puts "✅ Payment history: #{previous_successful} previous successful payments"

    # Step 4: Prepare Reg E response
    if auth_valid && previous_successful >= 2
      {
        status: 'authorized',
        recommendation: 'uphold_debit',
        evidence: {
          authorization_date: auth_record.signed_at,
          auth_type: auth_record.auth_type,
          previous_payments: previous_successful,
          auth_document: auth_record.document_url,
          disputed_amount_cents: debit_amount_cents
        }
      }
    else
      {
        status: 'unauthorized',
        recommendation: 'reverse_and_credit',
        reason: 'insufficient_authorization_evidence',
        disputed_amount_cents: debit_amount_cents
      }
    end
end

def submit_reg_e_response(dispute_id, investigation_result)
puts "📤 Submitting Reg E response for dispute #{dispute_id}"

    response_payload = {
      dispute_id: dispute_id,
      investigation_result: investigation_result,
      submitted_at: Time.now,
      responder: 'payments_team'
    }

    @bank.submit_reg_e_response(response_payload)

    {
      submitted: true,
      dispute_id: dispute_id,
      # Track your own internal 45-day window
      deadline: Time.now + 45 * 24 * 60 * 60
    }
end
end

# Usage example
auth_repo = AuthorizationRepository.new
handler = RegEDisputeHandler.new(bank_client, auth_repo)

result = handler.investigate_recurring_dispute(
customer_id: 'cust_12345',
debit_amount_cents: 9_900, # $99.00
debit_date: Date.today - 5
)

puts result.inspect
# => { status: 'authorized', recommendation: 'uphold_debit', evidence: {...} }

response = handler.submit_reg_e_response('dispute_abc123', result)
puts response.inspect

Scenario 2: Duplicate Return (Return Got Returned Twice)

Situation: A return is issued (R10 – Unauthorized) for $1,000. Due to a bank processing error, the return is posted twice to the customer’s account.

Customer disputes: “I received $2,000 back but should only get $1,000. Why did you double-return me?”

What happens:

Your investigation:

Outcome:

# Scenario 2: Duplicate Return Detection & Resolution
class DuplicateReturnHandler
def initialize(transaction_ledger, bank_client)
@ledger = transaction_ledger
@bank = bank_client
end

def investigate_duplicate_return(customer_id, return_trace_number, return_amount_cents)
puts "🔍 Investigating duplicate return claim"

    # Step 1: Find the original debit this return is for
    original_debit = @ledger.find_debit_by_return_trace(return_trace_number)

    unless original_debit
      puts "❌ Could not find original debit for this return."
      return { status: 'unresolved', action: 'escalate_to_ops' }
    end

    # Step 2: Find all returns for this original debit
    all_returns = @ledger.find_returns_for_debit(original_debit.id)

    puts "✅ Original debit found: #{original_debit.amount_cents / 100.0}"
    puts "✅ Returns found for this debit: #{all_returns.count}"

    # Step 3: Detect duplicates
    duplicate_returns = all_returns.select do |r|
      r.amount_cents == return_amount_cents && r.reason_code == 'R10'
    end

    puts "✅ Identical returns detected: #{duplicate_returns.count}"

    if duplicate_returns.count > 1
      puts "⚠️  DUPLICATE DETECTED!"
      {
        status: 'duplicate_confirmed',
        action: 'reverse_duplicate',
        duplicates: duplicate_returns.map(&:id),
        amount_to_reverse_cents: return_amount_cents,
        customer_id: customer_id
      }
    else
      {
        status: 'no_duplicate',
        action: 'investigate_further'
      }
    end
end

def reverse_duplicate_return(customer_id, return_id)
puts "🔄 Reversing duplicate return #{return_id}"

    return_record = @ledger.find_return(return_id)

    # Step 1: Create reversal entry
    reversal = @ledger.post_reversal(
      customer_id: customer_id,
      reversal_of: return_id,
      amount_cents: return_record.amount_cents,
      reason: 'duplicate_return',
      timestamp: Time.now
    )

    # Step 2: Notify bank
    @bank.submit_return_correction(
      original_return_id: return_id,
      correction_type: 'duplicate_reversal',
      reversal_amount_cents: return_record.amount_cents
    )

    puts "✅ Reversal submitted. Duplicate return reversed."

    {
      status: 'reversed',
      return_id: return_id,
      reversal_id: reversal.id
    }
end
end

# Usage example
handler = DuplicateReturnHandler.new(ledger, bank_client)

result = handler.investigate_duplicate_return(
customer_id: 'cust_abc',
return_trace_number: '000000001234567',
return_amount_cents: 100_000 # $1,000
)

puts result.inspect

if result[:status] == 'duplicate_confirmed'
reversal = handler.reverse_duplicate_return('cust_abc', result[:duplicates].first)
puts reversal.inspect
end

Scenario 3: Customer Doesn’t Recognize Merchant Name

Situation: A customer sees “ACME DIGITAL SVCS” on their bank statement for $99 and doesn’t recognize it. They file an R10 (Unauthorized) claim with their bank, believing it’s fraud.

A week later, the customer realizes “ACME DIGITAL SVCS” is actually the project management SaaS tool they signed up for, which uses a different brand name in their marketing.

Customer contacts you: “I told my bank this was unauthorized, but I just realized I did sign up for this service. How do I fix this?”

What happens:

Your investigation:

Outcome:

# Scenario 3: Merchant Name Recognition Issue
class MerchantRecognitionDisputeHandler
  def initialize(bank_client, auth_repository)
    @bank = bank_client
    @auth_repo = auth_repository
  end

  def investigate_recognition_dispute(customer_id, return_id)
    puts "🔍 Investigating merchant name recognition dispute"

    return_record = @bank.fetch_return(return_id)
    original_debit = @bank.fetch_debit_for_return(return_id)

    # Step 1: Find authorization
    auth_record = @auth_repo.find_by_customer_and_debit(
      customer_id: customer_id,
      debit_trace: original_debit.trace_number
    )

    unless auth_record
      puts "❌ No authorization found. Return appears valid."
      return {
        status: 'no_authorization',
        action: 'uphold_return',
        customer_message: 'We have no record of authorization for this transaction.'
      }
    end

    puts "✅ Authorization found:"
    puts "   - Date: #{auth_record.signed_at}"
    puts "   - Type: #{auth_record.auth_type}"
    puts "   - Descriptor used: #{original_debit.descriptor}"

    # Step 2: Check payment history
    payment_history = @auth_repo.find_payments_by_customer(customer_id)
    previous_successful = payment_history.count { |p| p.status == 'completed' }

    puts "✅ Payment history: #{previous_successful} previous successful payments"

    # Step 3: Prepare documentation package for customer
    {
      status: 'authorization_confirmed',
      action: 'provide_customer_documentation',
      evidence_package: {
        authorization_date: auth_record.signed_at,
        signup_confirmation_url: auth_record.signup_confirmation_url,
        previous_payments: previous_successful,
        service_descriptor: original_debit.descriptor,
        branded_name: auth_record.service_name
      },
      customer_message: generate_customer_message(auth_record, original_debit)
    }
  end

  def generate_customer_message(auth_record, debit)
    <<~MESSAGE
      We've confirmed you authorized this payment on #{auth_record.signed_at.strftime('%B %d, %Y')} 
      when you signed up for #{auth_record.service_name}.
      
      On your bank statement, this appears as "#{debit.descriptor}" - this is our payment 
      processing name.
      
      To reverse the unauthorized claim with your bank:
      1. Contact your bank's customer service
      2. Explain you now recognize the charge
      3. Reference these details: [authorization documentation attached]
      
      We're here to help if you need additional documentation.
    MESSAGE
  end

  def provide_documentation_to_customer(customer_id, evidence_package)
    puts "📧 Sending documentation package to customer #{customer_id}"
    
    # Send evidence package to customer
    # They will use this to contact their bank
    
    {
      documentation_sent: true,
      next_action: 'customer_contacts_their_bank',
      internal_note: 'Monitor for return reversal or re-presentment opportunity'
    }
  end
end

# Usage example
handler = MerchantRecognitionDisputeHandler.new(bank_client, auth_repo)

result = handler.investigate_recognition_dispute(
  customer_id: 'cust_abc',
  return_id: 'return_123'
)

puts result.inspect

if result[:action] == 'provide_customer_documentation'
  handler.provide_documentation_to_customer('cust_abc', result[:evidence_package])
end

Note: This situation doesn’t involve filing a dishonored return (R62, R67, R69). The customer needs to work with their bank to reverse their fraud claim. Your role is to provide supporting documentation and maintain clear records.

Validation & Monitoring

You want to know two things:

How to Validate Your Implementation

Unit tests

Trigger a dispute from a customer UI.

Verify:

Case is created.

Deadlines are computed.

Notifications are sent.

Final resolution is recorded and visible internally.

Monitoring & Alerting

Track these metrics to ensure your contested return workflow stays healthy:

Metric Why It Matters Alert Threshold Action Required
Dispute Rate High dispute rates indicate authorization or UX problems >5% of returns disputed over 30-day period Owner: Product + Payments Ops. Break down by merchant/product/flow; review mandate copy + checkout UX; improve descriptor/help text; add “recognize this charge?” FAQ; tighten re-presentment rules.
Overdue Investigations Missing Reg E deadlines is a regulatory violation Any case past 45-day deadline Owner: Ops lead (paged). Freeze queue, work oldest-first; if evidence incomplete → credit/accept loss; file incident + root cause; add SLA alerts at T-10/T-5/T-1 days.
Investigation Duration Slow investigations create customer frustration and risk Average >10 days to resolve Owner: Eng + Ops. Identify top blockers (missing POA, log retrieval, vendor response); automate evidence bundle creation; prefetch artifacts on case open; add internal “case ready” checklist.
Upheld vs. Reversed Ratio Extreme ratios suggest systematic issues Sharp changes from baseline; sustained extremes (<5% or >15%) Owner: Risk + Compliance. Segment by dispute type and merchant; if reversals spike → fix authorization capture + confirmation; if reversals too low → audit fairness, QA evidence standards, review comms tone; recalibrate playbooks + training.
Repeat Disputes (Same Customer) Same customer disputing multiple transactions signals deeper issue 2+ disputes in 30 days Owner: Risk Ops. Run fraud/ATO check; require stronger re-auth (micro-deposit, step-up); pause re-presentment; review merchant descriptor; consider account restrictions/escalation.
Dispute Type Distribution Helps prioritize engineering efforts Authorization disputes >50% of total Owner: Eng + Product. Improve mandate storage + retrieval; add “authorization receipt” email; persist IP/device/terms version; reduce ambiguous descriptors; ship self-serve “what is this charge?” flow.
Time to First Response Customer satisfaction and Reg E compliance >10 business days to acknowledge Owner: Support Ops. Auto-ack within 1 business day; template responses; case routing rules; dashboard for unacknowledged cases; weekend/holiday coverage plan.
Cases Pending >30 Days Risk of missing deadlines >3 cases in 30–45 day window Owner: Ops manager. Weekly backlog review; dedicate “deadline squad”; escalate evidence requests to ODFI; stop work on low-priority cases until backlog clears; track aging buckets (0–7/8–15/16–30/31–45).

❗ Warning: Missing a Reg E deadline is itself a violation. You should have at least one alert that pages human beings when any case crosses the 45-day window.

Implementation Notes

Banking Days vs. Calendar Days: Use a banking day calculator (like the holidays gem in Ruby) for the 10-banking-day NACHA POA window and the 10-business-day Reg E acknowledgment window. Banking days exclude Federal Reserve holidays.

Provisional Credit Liability Tracking: The consumer’s FI provides provisional credit, not your platform. However, you should track your expected liability exposure in an internal ledger. If the FI’s investigation results in permanent credit to the consumer, your platform will be debited by your ODFI. Use shadow ledger entries to reserve for potential losses during the investigation period.

def track_liability_exposure
  # Reserve for potential loss during investigation
  ledger.post_liability_reserve(
    customer_id: customer_id,
    amount_cents: disputed_amount_cents,
    reserve_type: 'reg_e_investigation',
    investigation_id: self.id,
    expires_at: created_at + 45.days
  )
end

def resolve_investigation(outcome)
  reserve = ledger.find_liability_reserve(self.id)

  if outcome == 'customer_wins'
    # FI debits your account; convert reserve to actual loss
    ledger.post_debit(
      customer_id: customer_id,
      amount_cents: reserve.amount_cents,
      debit_type: 'reg_e_chargeback',
      clears_reserve: reserve.id
    )
  else
    # Release reserve; no loss
    ledger.release_reserve(reserve.id)
  end
end

Escalation Guide

Contact your ODFI immediately if:

Best Practices

Watch Outs

Takeaways

The strongest payment platforms treat contested returns not as a cost center, but as a trust-building mechanism. Fair, transparent investigation turns frustrated customers into advocates.

Acronyms & Definitions

ACH – Automated Clearing House, the batch electronic payment network used for debits and credits between U.S. bank accounts.

FI - Financial Institution

RDFI – Receiving Depository Financial Institution; the customer’s bank that receives ACH entries.

ODFI – Originating Depository Financial Institution; the bank that originates ACH entries on behalf of your platform.

Reg E – Regulation E (12 CFR 1005), U.S. regulation governing electronic fund transfers and consumer protections.

NACHA – The organization that administers the ACH Network and publishes the Operating Rules & Guidelines.

Return Code (R01-R85) – Standard ACH codes indicating why an entry was returned (e.g., R01 Insufficient Funds, R02 Account Closed).

Dishonored Return (e.g., R62) – An ACH message used by the ODFI to contest or reject an RDFI’s return as erroneous.

CFPB – Consumer Financial Protection Bureau, U.S. agency overseeing consumer financial protection laws.

Disputed Amount (cents) – Integer amount representing currency in cents (e.g., 100_000 = $1,000.00) used in systems to avoid float issues.

References

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At BuildTales.dev, Suma Manjunath is passionate about writing, intentional tech, and the messy magic of building great software teams.

If you enjoyed this article, explore more stories in these series:

  • 💳 Payments Series – ACH, card networks, faster payments, wallets, crypto
  • 🧭 Leadership Series – Systems thinking, organizational growth, decision-making
  • 🏗 Systems Series – Architecture, resilience, scaling patterns for software engineers

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