'Bank error in your favor'
could mean 'Go directly to jail!'
By Michelle Samaad • Bankrate.com

Do the right thing, our conscience begs.

And we typically do: deciding not to fight over that parking space at the mall or returning a lost wallet to the police station.

But when large amounts of cash are involved -- money not belonging to us -- we hesitate, procrastinate or, worse, end up keeping it.

Found money, lost freedom
That's what recently happened to an AmSouth Bank customer in Alabama. After the bank mistakenly credited his account with $1.6 million, Roger Dudley, 21, went on a immediate shopping spree: He paid off his truck and credit cards, bought 7,000 shares of AmSouth's mutual funds, bought expensive jewelry and airline tickets for his wife, and quit his job at a hardware store.

Days later, reality set in and now Dudley is facing federal charges that could mean jail time if he doesn't pay the money back.

This type of bank mishap is not as rare as you might think. In the past two years, a number of financial institutions surprised customers with windfalls of money:

• Last year, a legally blind customer at American Security Bank in Louisiana spent $21,000 the bank mistakenly placed in his checking account. The customer thought the money was from a Social Security benefit adjustment. The bank has since dropped criminal charges but the customer still has to pay the money back.
• When a Barnett Bank customer in Florida checked his statement one morning two years ago, he noticed the bank had transferred $400,000 from his Swiss bank account. After verifying with both banks that this was a legitimate transfer (both banks said yes), he converted the $400,000 to a cashier's check and used the money to set up an annuity for his wife. The bank sued but the customer claimed he couldn't pay it back even if he wanted to because the money was set up as an irrevocable annuity, meaning no withdrawals could be made. The customer has been ordered by a judge to pay the money back plus triple damages amounting to an additional $800,000 and attorney fees for both sides.
• The conscience of a Lexington Postal Credit Union customer got the better of her last fall and she returned the $174,825 that was accidentally credited to her checking account. After asking the credit union to transfer $175 from her account in Lexington, Ky. to her account at a bank in Columbus, Ohio, something went wrong with the electronic wire transfer. It took three phone calls to the credit union, the bank and the Kentucky Corporate Federal Credit union, the middleman, before the matter was resolved.
• A man in Clovis, Calif., just wanted to exchange some Japanese yen for U.S. dollars. He went to a Wells Fargo branch last year to exchange 8,000 yen, which is $64 in American money. The teller handed him $4,089.07 in cash. To be sure, he asked the teller to recheck her figures and she said that the amount was correct. The customer went home, waited 48 hours and when he didn't hear from the bank about the error, the spending began. The man is not a Wells' customer but his elderly mother (who also lives on Social Security and is a diabetic) is, and within a week the bank discovered the mistake and took the money from her savings account. In an unexpected move, the bank "reversed" her account and returned her money, saying the teller "did not follow procedures." Meanwhile, the son was ordered to pay the money back through a monthly repayment plan.

So, the message is silver-dollar-shiny-clear: Any money that is accidentally credited to your account must be given back, says Douglas W. Roeder, deputy comptroller of large bank supervision at the Office of the Comptroller of the Currency, the Washington agency that regulates banks.

Roeder adds there are rarely any exceptions and most banks will proceed with federal and criminal charges if you don't pay it back.

"Every bank is different," Roeder says. "We've even heard of some banks rewarding customers with a small portion of the money for speaking up."

How small?

"Oh, only a couple hundred dollars, but it's better than nothing."

Your costly errors
The cynics might argue that banks are being unfair in their demand for their misplaced cash. Accidentally bounce a check and a bank may hit you with a $30 insufficient funds fee for each check it has to cover. Customers are also penalized for calling customer service too many times or mistakenly talking to a teller.

The point? "Banks will slam you and slam you again if you make one mistake," says Ed Mierzwinski, consumer program director of the US Public Interest Research Group, a consumer advocacy group in Washington. "But you're expected to smile and look the other way if they goof up."

No one can really explain why banks err. Lately, bank merger activity has spurred lost deposits, statement errors and ATM snafus. But it can be as easy as a teller typing the decimal point behind the wrong zero or a glitch in an electronic wire transfer.

Don't count on mistakes
About $250 trillion was moved in 85 million wire transfers last year, according to the Federal Reserve, which operates the Fedwire electronic funds transfer system. Still, with that barrage of cash changing banks, states and hands, "there are very, very few errors made in wire transfers," says Elliott McEntee, president of the National Automated Clearing House Association, an industry group in Herndon, Va., that develops rules for electronic payments. In most cases, errors are discovered and corrected, and the customer never knows it happened, McEntee adds.

If you happen to be among the unsuspecting people who goes to check your balance, notices the additional zeros after the comma and quietly starts strategizing your spending spree, think of the consequences. We grudgingly offer these steps to follow should you hit the temporary lottery:

• Call the bank or credit union immediately and report the addition.
• Don't rely on a teller to fix the problem. Deal directly with the branch manager -- and be sure to get their name.
• Get something in writing verifying the day the correction was made -- signed by a branch manager.
• Check your account to make sure the correction was actually made.
• Don't even think about keeping the money -- you could go to jail and you will have to pay back every cent.

-- Posted: Aug. 31, 1999