Ever wonder why the human resources department at work is so very insistent that you staple a canceled check to your direct deposit form?
A recent report from Patrick Collinson of The Guardian illustrates why. In October, a hairdresser in the United Kingdom named Sally Donaldson discovered that she had been mistakenly transferring her paycheck into someone else's checking account for two years.
Donaldson had arranged to have the money transferred from her HSBC account to her and her husband's joint account automatically every time she got paid, but she accidentally entered in one digit wrong while entering in her account number in the online form.
According to The Guardian report, she's been fighting for return of the money, which added up to 26,650 pounds, or about $40,000, with little success. The third party doesn't want to return the money, and their bank is prevented from sharing the customer's information with Donaldson.
So if something like this happened in the U.S., how would an American Sally Donaldson get her money back?
It's possible the Consumer Financial Protection Bureau might step in on behalf of a consumer in that situation, says Justin Hosie, an attorney and partner in the Tennessee office of the law firm Hudson Cook.
Regulation E, which is the law governing wire transfers and other online banking transactions, doesn't specifically address this issue given the length of time this consumer took to address the issue. But the CFPB's unique role among financial regulators as a consumer advocate could lead it to contact the bank and try and persuade it to voluntarily turn over the money.
"If it was one of the banks that's over $10 billion in assets, the CFPB would have direct authority and you might actually have a shot at them exerting some pressure and forcing the right action," Hosie says.
Failing that, an American version of Donaldson could bring an unjust enrichment or other equitable lawsuit naming her bank, the bank that received the transfer, and the unnamed party in whose account the funds were deposited, Hosie says. There is likely a two-year statute of limitations that could keep some of the earliest transfers out of the suit, but considering the amount of money at stake, it would probably be worth it.
"If we're talking $40,000, I would say it's worth the legal action even if you end up paying one-third to some plaintiff's lawyer to get back two-thirds of it," Hosie says.
Assuming the rogue account holder hasn't already spent the money, the courts could force him or her to turn it over. And if the rogue account holder was insolvent, courts could garnish his or her wages to pay back the money.
"You or I, if we started to receive $5,000 a month just sort of by surprise into our checking accounts, we would as decent human beings say, 'Hey bank, something's going on here.' And we would be bad actors if we didn't do that," Hosie says. "I can't believe the courts wouldn't have any recourse."
Of course, the easier course of action is avoiding the situation in the first place.
Direct deposits and automatic transfers are powerful money management tools. Especially for those trying to build savings, they can help remove the temptation to spend money you'd like to save by whisking it out of your checking account before you can even start thinking about spending it.
But double- and even triple-checking the account numbers before arranging an automatic transfer seems like a good idea. And of course, exercise due diligence in making sure any money you transfer actually makes it into the second account so if some of your cash does get caught up in some kind of dispute, it won't involve two years' worth of paychecks.
What do you think? Should Donaldson have caught the error sooner? Should the banks involved cough up the money on their own? Have you ever had a money transfer go bad?
Follow me on Twitter: @ClaesBell.