A few months ago, I noticed that £3,000 had been transferred in to my account. I was expecting a payment from a client so I’d been spending the money without realising it. Six months later, my bank tell me that the money was transferred in error and they want the cash back. Can they do this?

It’s one of the biggest banking urban myths there is – yet I get countless questions about this very subject every year. So let’s do the tough bit first. If money gets transferred in to your account by mistake, then it’s not yours to keep. Nope, not even after months have passed. Not if no one notices. And if you refuse to return the cash – for example if you’ve withdrawn it – then you could be prosecuted (it’s considered to be a form of theft). But that doesn’t mean you should be treated badly by the bank.

Worryingly, accidental or mistaken deposits aren’t that rare – which is why I’m always asked about them! It’s dead easy for a human to make a keying error with a payment – though it’s trickier with online payments since the recent changes to ensure the account name matches the account numbers. Most of the bank mistakes I see involve large businesses that make thousands of payments a day. So it’s more likely they won’t notice an error for a while – or until the actual recipient makes a complaint that they’ve not had the money.

When the bank realises it’s mistake, it will contact you and ask for the cash back. If you’ve got enough credit it could just take it – but in practice, you should be contacted, apologised to and given a date for the recall of the cash. This is supremely annoying – after all, you didn’t make the error and your bank may not have treated you as well if you’d made the mistake. But sadly, this is how the process works.

If you’ve spent some or all of the cash, what happens next can vary. Realistically, the bank can’t put you in to your overdraft (or beyond it) and should not charge you interest on the missing cash while you pay it back. They may take a harder line with you if you’ve managed to work your way through a large amount of cash that you couldn’t possibly have expected back – say, £50,000. Under those circumstances, it’s clear that you should have known the money isn’t yours. Again, if you’ve gone on a shopping spree knowing full well that the money isn’t yours, it is, in the eyes of the law, stealing.

But then, things aren’t always black and white. What if you were expecting an inheritance, redundancy payment or other windfall? If you can demonstrate that you had reasonable expectations that the cash was yours then you should not be penalised – though you’ll have to pay it back. If you think that you’ve been treated unfairly you can take the bank to the Financial Ombudsman. Make sure you write down everything relevant to the case – including your financial situation at the time.

Most cases involve smaller amounts so the spending is understandable. I’d expect any bank to offer you an interest free loan to repay the money at a rate you can afford. If that’s £2 a month then so be it. For smaller payments like this, be prepared to fill out a financial questionnaire so the bank knows what your situation is.

But in short: There’s no such thing as free money.

Featured in Mirror – Martyn James


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