/ Money

Banks begin to move on misdirected payments

Close-up of cash

In September we spoke about the failure of banks to return money that’s accidentally been paid into the wrong account. Since then some banks have taken action to help their customers get their money back…

Which? reader Tony Moss entered one incorrect digit when trying to transfer £742 into his Royal Bank of Scotland account. As a result his money ended up in the loan account of someone who’d left the country, leaving their debts unsettled.

Despite complaining to both the Financial Ombudsman Service and small claims court it was only once Tony appeared on Nick Ferrari’s radio show on LBC and drew attention to his situation that his money was refunded by RBS.

After we exposed the lack of protection available to bank customers who misdirect payments, online banks began to take steps to improve things.

Banks change their T&Cs

Of the banks we spoke to, First Direct, HSBC and Nationwide said they would make changes to their terms and conditions. They’ll now make it clear to customers that mistaken payments can be returned.

Barclays, RBS and Santander told us they have no plans to change their terms, meaning customers’ rights remain unclear. And Lloyds has said it is looking into the issue.

It’s great to see three banks breaking ranks on this issue. Although we’ve yet to see how well these changes will work in practice, they appear to be committed to resolving this issue and clarifying customers’ rights. It would be nice if other banks took action too.

Your misdirected payments

In our last Convo, we asked you to tell us your experiences of misdirected payments. Paul shared his top tip to avoid any mishap:

‘If making a transfer from my bank (setting up payee) I always test that the money is going into the account it should by sending a transfer of £1, then if it goes to the wrong account you haven’t lost much.’

But Bridge_Coach raised a warning with this technique:

‘There is one problem that I have found when using this technique – several times, large payments have been blocked by the fraud department of the bank and I have had to go through a lengthy telephone process to prove my identity.’

Have you ever accidentally sent money into the wrong bank account? Was your bank helpful or was it left to you to get your money back?

Have you ever accidentally transferred money to the wrong account?

No - luckily not, touch wood (91%, 252 Votes)

Yes - and my bank helped me get it back (5%, 15 Votes)

Yes - but I didn't get any assistance from my bank (4%, 11 Votes)

Total Voters: 278

Loading ... Loading ...

If you make a mistake when transferring money, and it ends up in another persons account, Ipresume you have to first prove that you did not intend to pay that person, otherwise it could be open to abuse. I do not see that sort of situation being the banks “fault” and that whilst they should do all they can to help, they may be unable to retrieve your money. Down to you. Be more careful?

I agree with you, but I do think the banks could do more to prevent it from happening in the first place. Such as asking for the last name of the account holder as an additional check that it’s going to the right person perhaps?

Last names can cause problems, because for many people, such as Hungarians or many Asians, the last name is the given name rather than the family name. A safer system would be the surname, but even that can vary, particularly when people marry or divorce. That’s why I suggest below that the precise account name should be quoted in the same way that the precise sort code and account number are quoted.

I have never misdirected a payment, but it’s an easy mistake to make. I believe that this could be picked up if we use International Bank Account Numbers, which contain check digits to help spot errors.

Absolutely spot-on. Eurozone countries are moving to IBANs, even for national payments; previously they used them only for cross-border payments. We should do the same in the UK, and while we’re at it, it would make sense for the UK to opt into Article 14 of Regulation (EC) No 924/2009 (as Sweden has) so that intra-EU cross-border payments to and from the UK are charged in the same way as a domestic Sterling payment (i.e. in practice free). There is no reason for cross-border payments to be charged differently from domestic payments. The Eurozone, Sweden and even non-EU Switzerland charge cross-border payments in the same way as domestic payments. There is no reason why the UK shouldn’t follow suit with the effect that all payments using IBANs would be free of charge to anywhere in the EU.

As John has pointed out, our IBAN is on statements. If our banks are not using an established technology that could be very effective in preventing misdirected payments then there should be no question about refunding misdirected payments resulting from a minor error such as transposition of adjacent numbers. It might encourage the banks to roll-out use of IBANs for all transactions.

Some good tips above: Post a one pound pilot payment [Paul referenced in the Intro] and Wavechange’s recommendation to use the IBAN [shown at the top of bank statements]. It is the risk of making a mistake that has inhibited me and no doubts lots of other people from doing transfers on line. I have only done a few on-line transfers and none recently; I cannot remember if it was possible to retain a printed record of the transfer details as evidence in the event that any error had been made within the banking system. So long as people take care with the digits, I don’t think the system is any more prone to error than sending a cheque in the post, and overall it’s a lot safer. I’m pleased that my bank is one of those that has a helpful attitude to putting things right.

smike says:
29 November 2014

The banks should require you to enter the name of the account holder as well as the address.

This would solve the problem at a stroke, but would require due diligence by the bank to check that they matched, so don’t hold your breath.

The banks already ask you to enter the name of the account holder, but it is not validated. You can enter “Mickey Mouse” if you want and the payment will still reach the entered sort code and account number. Entering the address wouldn’t help, because there are so many variations of how an address can be entered and it would fail validation. Even entering a postcode might cause problems, particularly if the payee has a UK bank account but a non-UK postal address.

On the subject of entering the address, I should explain how online banking works in the US. Instead of asking for the clearing code (US sort code) and account number, US banks ask for the payee’s postal address. Your bank then puts a cheque in the post to the payee. You might think I’m joking, but this is how it works with all maintstream US banks; they have no system for high volume low value transfers like FPS or BACS.

Gerard Phelan says:
1 December 2014

Adding account holder names – great idea – in principle. Alas not in practice. Do you know the name of the person to whom you are transferring money? Do you know the name by which their bank account knows them? It is not just married women who live with two identities, using one name for the authorities and another for friends, but companies too. I often see small print saying something like “Instant Jewellery Ltd” is T/A (trading as) “Magnificent Creations”. Without implying any suggestion of fraud, how would you know which in which name the bank account exists? Even my Which? Local lauded Central Heating specialist is ABC Ltd trading as XYZ.
Thus alas such a change is likely to exchange occasional misdirections for more frequent refused payments – whether that is a net gain or loss is for others to say.

The account name could be used because it would be the payee’s responsibility to give their account name as precisely as they give their sort code and account number. For example, someone might give their bank details as:

Account name: John Smith
Sort code: 20-00-00
Account number: 00000000

The 10 characters “John Smith” would have to match precisely without case sensitivity in the same way that the sort code and account number must already match precisely.

Linda says:
2 December 2014

unfortunately I transfered some money earlier this month to a santander account and got two digits the wrong way round. Santander say they have written to the recipient to ask for its return. Not sure what happens next, yet.

michelle deathe says:
25 February 2015

phoned my bank to make sure I was paying the right way help to do so by them only to find out it was a scamer

I had the following response from the Payments Council. Hope it’s not duplicating other contributions.

“Electronic payment systems, such as Faster Payments which process the vast majority of inter-bank online and phone banking payments, have been designed to check a unique identifier, which is the payee sort code and account number. The way a payment is addressed is determined by legislation called the Payment Services Regulations. Electronic payments (i.e. internet banking etc) are legally obliged to be addressed using the ‘unique identifier’, which is the sort code and account number. This allows the majority of payments to be processed in a matter of seconds.

Introducing a name check at the paying bank would slow payments down significantly because paying banks do not have access to the account names and details of customers of other banks, due to Data Protection laws. In order for a paying bank to validate that the name and details of a payee at another bank are correct, it would have to contact the payee bank and obtain confirmation. This would be complicated even further if any of the information provided by the paying customer about the payee is incorrect, for example, if the actual name of the account holder does not match what the paying customer has entered alongside the payment. This could occur for a number of reasons, including if the paying customer misspells the payee name, or only uses part of the account name (i.e. ‘A. Smith’ instead of ‘Andrew James Smith’), or if the person is known by a different name to their account, which sometimes happens if someone’s account is still in their maiden name.

The reason why paying customers are asked to provide the payee name when making a payment is to allow them to easily identify on their own bank statement who they made the payment to.

The Payment Council’s mobile payments service ‘Paym’, which was launched on the 29th April 2014 by participating banks and building societies, has an in-built design feature that checks account details against the payee name and provides the payee’s account name back to the paying customer before they press send, lessening the risk of a payment being sent to the wrong account. The service is able to do this because customers opt in to use it and provide specific consent for their details to be linked and used in this way. We are learning from our work in this area and will make sure that it is well considered in the design of future innovations in payment systems.”

Hi i did a faster payment through TSB to a Natwest account holder & got the last two digits wrong this was in April 2105 now its over 3 months and TSB have said they cant help. complained to ombudsman lady rang me back & basically said its your fault you should have checked?
Natwest is still looking at it with minimum hope? been told apart from the accidental transfer of my funds this account has been dormant for the last 10 years?
looking to see what options with the small claims court ? one snag bank wont give me details of who account holder is so that I can put a claim against them or will i have to just do it against Natwest or TSB.
what an absoluteland mine with no help at all other than we will try our best, maybe we can help etc..
any ideas or recomendations?
best regards

I think NatWest is your only hope. They might be able to extract the money from the dormant account and return it to TSB, but it’s a long time now since the mistake was made and it might not be possible at this stage to treat the credit as a transactional error and reverse it without seeking the account holder’s permission. I should be surprised if you have the basis for a legal claim against either of the banks as they acted on your instructions and could not have known or anticipated that they might have been incorrect. You might have grounds for a claim against the account-holder if they refuse to surrender the funds upon request; you might need to get a court order to reveal the account-holder’s details, unless NatWest are willing to undertake that on your behalf [possibly at the behest of TSB]. Costs and charges will arise that might make it prohibitive to proceed.

Hi just an update.
i applied to ombudsman got turned down as yo say John for TSB
but the natwest was dealt with by another person & i had said natwest was making a gain unlawfully? or something to that effect.
omdudsman rang me & asked if it was from private or business account it was private?
then i got a phone from ombudsman to say he agreed with me that Natwest was not right to keep the funds as although i made a mistake it was clear which account the funds came from & as such it should be reversed accordingly & paid back in full? but no compensation as i had initiated the issue in the begining by making the mistake.
so i am waiting for the money to be returned.
luckily i asked the original ombudsman lady who looked at TSB not to deal with the natwest & that i wanted a 2nd person to look at?
so thats it lets hope the refund is made
all the best