YOUR MONEY: Don't bank on overpayment

Keeping money accidentally credited by your bank to your account amounts to theft. But what happens when you hold on to it for a while, just for interest's sake? By Paul Slade

Two weeks ago, one of the big four High Street banks sent me a cheque for pounds 7,343.75 instead of the pounds 352.50 which they actually owed me. My first urge, naturally, was to cash the cheque immediately and head for Bermuda. Instead, I thought I'd better call the bank in question and ask if they had decided on a particularly generous bonus for the work involved - a freelance article for the bank's internal use.

Sadly, this was not the case. It turns out that the cheque had been intended not for my own Informed Sources Ltd, but for another company with a similar name. Someone in the bank's accounts department had keyed in the wrong company code. A few days after my initial call, they requested that I tear up the cheque, which I duly did.

But what if I had simply banked it? Here we have a substantial overpayment at the bank's error, with no encouragement from me. Clearly, it was obvious the cheque was far too large, making any attempt to keep the money out and out theft. We all know, however, that it can take large organisations weeks to catch up with something like this. Could I have at least gathered a few quid in interest on the pounds 7,000 overpayment while waiting for them to chase up their error?

Deputy banking ombudsman Chris Eadie says there is no single principle which can be brought to bear here. "I wouldn't like to say there was necessarily anything wrong with somebody putting the money into an interest bearing account until it got sorted out and then claiming the interest," he says.

"I would have thought that if somebody, realising there was some mistake, put the money into their building society account to earn a bit of interest, that would be a matter between them and the bank. The bank might claim interest but, it being their mistake, I think it very unlikely that they would."

Eadie also confirms that the fondly held idea that banks' customers can simply hang on to any payments made in error to their account - still heard in saloon bars up and down the land - is really just an urban myth. "Some people argue that, because the bank has made the mistake they shouldn't have to pay it back," he said. "That is, in our view, usually an unreasonable approach."

Jackie Hewitt, a Consumers' Association lawyer, says the question here is one of what the law calls "unjust enrichment" and that this idea applies just as much to any interest earned as to the overpayment itself.

"Essentially, the principle is that you're not to benefit from somebody else's mistake," she says. "They may well be within their legal rights to say 'give us that interest back, it's ours'." Hewitt adds that the company which should have received the cheque may well then act to recover their lost interest, on the grounds that the bank's payment to them was late.

Both Eadie and Hewitt say what occurred in my own case was unusual. More common is a situation where a bank credits someone's personal account with a few hundred pounds which should not be there and the account holder goes on to spend that money in all good faith. In cases like this, the bank is still entitled to recover the money, but will probably not charge for any overdraft or bounced cheques which result.

"I'm not saying that's the invariable practice, but a bank will quite often do that," says Eadie. "We think that's a reasonable way for a bank to suggest the matter is sorted out."

Another test here will be whether it was reasonable for the payee not to notice any error. Says Hewitt: "I think it would be hard for you to argue that you hadn't noticed the difference with such a large sum."

As for which bank was involved in my own case, well, no names, no pack drill. Let's just say it's the same one whose derivatives arm mislaid pounds 90m at the end of last week