By This Is Money
Updated:
I'm a sole trader and it seems that a company I had not done work for made a payment of £1,800 in error - directly to my bank account - back in June 2005.
Cash back: If you refuse to return money paid in to your bank by error it will be seen as theft
I didn't notice this at the time but have checked my old statements and the payment is there.
They have contacted me asking for the money to be paid back and have threatened legal action, interest at 8% per annum above base rate and £100 compensation for pre-litigation debt recovery costs pursuant to the Late Payment of Commercial Debts Interest Act 1998 - if I do not repay the money in seven days.
I don't really feel as though I have a debt and I was annoyed at the inconvenience of having to go through all my accounts to see if the payment had been made in the first place. Can anyone tell me if I am legally bound to repay this money which until a few weeks ago I knew nothing about? A.S. - Edinburgh.
Alan O'Sullivan, saving and banking expert at This is Money, replies: The short answer to this is, yes, you have to pay the money back.
Legally, if you received money in error and you know that it is not yours, then you must pay it back. If you receive money and you can put forward a credible argument as to why you should keep it – that it is a reasonable return for services rendered – that's a different situation.
In some circ*mstances, the customer might be able to claim that they have 'altered their position' on the strength of the item that has been credited; for example, if they were expecting a similar sum to the amount that was wrongly credited and they have spent the money believing it to be rightly theirs. This point was upheld in Lloyds bank vs Brooks (1950), according to the British Bankers Association.
It points out that a customer cannot knowingly take advantage of an error, which the case Rhind v Commercial Bank of Scotland (1860) highlights as illegal.
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Seven days does seem like a short notice period for paying the money back under threat of legal action, but you mention that you knew about the money 'a few weeks ago.
The BBA says that its members would give individuals a 'reasonable amount of time' to return amounts accidentally deposited in the wrong account. Could it be that this was highlighted to you several weeks ago and you have dragged your feet in replying to them?
I'm afraid there is no easy way out of this, if the money is not yours then it is effectively borrowed money and you will have to pay it back.
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