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ombudsman news

issue 87

July/August 2010

banking complaints about misapplied credit

We receive a number of complaints each year concerning 'misapplied credit',
where a bank has incorrectly credited a customer's account with money that was meant for someone else. When the bank subsequently attempts to reclaim the money, the customer may object - arguing that since the error was not theirs, they should not be required to pay anything back.

In the board game Monopoly© it is good news if you get a card telling you that the bank has made an error in your favour - as you get to keep the money. But in real life, things are different. When dealing with complaints about misapplied credit, we generally take the view that consumers are required to return any money paid to them by mistake.

In certain circumstances, however, we may sometimes think it fair for the consumer to keep some or all of the money. This will usually be where the consumer reasonably believed that the money was theirs to spend - and spent it in a way they would not otherwise (or usually) have done.

Here are a few of the cases we have dealt with recently.

87/01
consumer unwilling to repay money credited to her bank account in error

After Mrs M visited the local branch of her bank and paid in a cheque for £100, the bank incorrectly credited her account with £1,000.

A week later, unaware of this mistake, she called in at the branch to withdraw a small amount of money from the cash machine. The balance displayed on-screen was considerably higher than she had expected, so she thought she should check it. She queued up to speak to a cashier, who confirmed that the on-screen balance was correct.

Mrs M had retired a few months earlier. She was aware that a former colleague had received a sizeable tax rebate when he retired. So she concluded, from the large balance on her account, that she too had been sent a rebate.

It was nearly four months before the bank discovered its error. Mrs M said she was then 'very distressed to receive a demand, out of the blue, for £900'. She explained to the bank that she was unable to repay the money as she had already spent it - taking her niece with her on a holiday to Italy.

The bank told her it would set up a repayment plan so she could pay the money back in monthly instalments. Mrs M thought it unfair that she should have to repay the money at all. The bank disagreed, so Mrs M came to us.

complaint upheld
We examined all the available evidence. We were satisfied that Mrs M had been under the impression that a tax rebate might be paid in to her account, at around the time when the bank error occurred. She had not known how much she might receive. And it was only when she queried her tax position, several months after she became aware of the bank's error, that she found she had never been due for a rebate after all.

We noted that Mrs B had taken the precaution of checking with a cashier at her bank branch, as soon as she noticed that the balance on her current account was unusually high. She had relied on what the cashier told her and we thought it reasonable for her to have believed that the money was hers. Mrs M had acted in good faith when spending the money on a holiday.

The trip was not one she could normally have afforded and as it had no resale value, there was no way in which the bank could recover any of the money she spent on it.

We told the bank that, in the circumstances of this particular case, it was not entitled to recover the £900 that it had credited to Mrs M's account in error.

87/02
bank mistakenly duplicates the transfer of funds into consumer's current account

When £1,000 was transferred into Mr A's current account, the bank accidentally duplicated the transfer, crediting him with £2,000. Two weeks later, the bank discovered the error and asked Mr A to repay £1,000. Mr A said he could not do this as he had already spent the money.

The bank then told him it was prepared to accept ten monthly payments of £100. Mr A argued that he had a right to keep the money, as he said the bank 'should not have made such a mistake'. The bank insisted that Mr A was obliged to repay the money, so he eventually referred his complaint to us.

complaint not upheld
Mr A sent us documents confirming that he had been expecting a transfer of £1,000. There was nothing to suggest he expected more than this amount - or more than one transfer. And a statement of his account, sent to him a few days after the transfer, showed clearly that two £1,000 credits had been made on the same day with the same reference details.

So we were satisfied that Mr A should have been aware that an error of some kind had occurred - and that the 'extra' £1,000 was not his to spend or keep. The bank confirmed that it was still willing to accept the money in ten interest-free monthly instalments, rather than as a one-off payment.

We told Mr A that, in the circumstances, the bank was acting reasonably in expecting him to pay the money back. We did not uphold the complaint.

87/03
bank miscalculates interest payable when closing customer's account

Mrs V's bank sent her a cheque for £103,954 after she closed her savings account. A few days later, the bank wrote and asked her to return £1,454. This was the difference between the amount it said it should have sent her (£102,500) and the amount it had sent her in error, after miscalculating the interest due on her savings.

Mrs V thought the bank was acting unreasonably and she refused to pay back the money. She said she had received the cheque in good faith. She had been very disappointed to learn that the interest on her savings was smaller than had first appeared - and she did not think she 'should be penalised for the bank's failure to work out the interest correctly'.

The bank insisted that it was entitled to have the money back, so Mrs V brought her complaint to us.

complaint upheld in part
We accepted Mrs V's point that the bank should have ensured its calculations were correct before it sent her the cheque. We also accepted that she had been very disappointed when she found she had earned less interest on her savings than she had first thought.

However, the error had not caused her any actual loss. The bank had discovered it quickly and had contacted her before she had done anything with the money. When it re-calculated the interest it did so correctly, in line with its published rates and with the terms and conditions Mrs V was given when she opened the account.

So we said that the bank was entitled to recover from Mrs V the amount it had paid her in error. However, in recognition of the disappointment and inconvenience the bank had caused her, we said it should allow her to retain £50.

87/04
online banking - bill payment is credited to someone other than the intended recipient

Mr D used his bank's online facilities to transfer £75 to a colleague, who had taken part in a sponsored bike-ride. He was unaware, at the time, that although he entered most of the details correctly, he made an error when entering the number of the account into which the money was to be paid.

Several weeks later he contacted his bank, after discovering that his colleague had not received the money. The bank traced the payment and found it had been credited to a third party - whose account number matched the one Mr D had entered in error.

Mr D accepted that he had made an error with the account number. However, the details of the name on the account had been correct. He therefore could not understand why the bank had not spotted the mismatch and queried it, before paying the money into the 'wrong' account.

Mr D wanted the bank to reimburse him for the lost payment. The bank refused, on the grounds that he, not the bank, had made the mistake. Mr D challenged this. He said that if the bank always sent payments to the account number entered online - even where this did not match the other details provided - then there should be a warning about this on the website.

The bank rejected Mr D's complaint. It said it had not been under any obligation to check the payment details he had entered online. Unhappy with this response, Mr D brought his complaint to us.

complaint upheld
We examined the bank's process for the online payment of bills. Banking industry guidance states that consumers should be specifically warned if payments will be processed and credited using just the account number. There was no such warning on the bank's website. We therefore told the bank to reimburse Mr D for the £75 payment.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.