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A credit card holder uses a Price Protection program (for instance, Citi Price Rewind) commonly found with many credit cards and is refunded an amount for a drop in the purchased item's price.

Later, a defect is found in the item, and the item is returned and refunded. Therefore, the benefit for the price drop is unwarranted, because the original item was refunded.

If the benefit is mistakenly not reversed (to the benefit of the credit card holder), is the holder legally obligated to notify the issuer?

Documents: The credit card agreement does not state anything about this circumstance. The price protection is a "complementary service"; it's provided at the discretion of the credit card company, and neither it's guide of use, faq, nor terms appear to place any relevant burdens on the holder as conditions for use.

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According to Citi's FAQ, you should cancel the rewind on returned items that are still in tracking.

What should I do if I return an item I am tracking?

You should cancel the Price Rewind on Track Details Page on this website. Citi Price Rewind is not available on items that are returned

That being said, there are no terms about how returned items are handled after the rewind process has been completed (as you noted). You are under no obligation to inform them of the change, and based on anecdotes in forums like Reddit, Citi doesn't appear to reverse the rewind. Citi contracts with an insurance company to handle the payouts, so it's likely built into the agreement between Citi and the insurance company how to handle it rather than expecting account holders to use an honor system-style approach.

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