It’s so easy to make payments these days. We can use contactless, PayPal, Apple Pay, BACS, CHAPs, and others. But there is always a nagging concern – what if I make a mistake?

A mistaken payment is usually an accidental transfer of money to someone who has no entitlement to it. This may happen because of a mistake made by the individual or business making or requesting a payment, or by their bank. It is also called a misdirected payment, or, in banking terminology, ‘misapplied funds’.

The mistake when making payment may be one of fact – such as thinking that a bill is outstanding when it has already been paid, or a mistake of law – for example, paying tax without realising it is not legally allowed to be charged.

Even though the mistake may be entirely your own, the law allows you to recover your money. Restitution is the legal remedy that allows the reversal of such an injustice. The recipient of the mistaken payment may repay you voluntarily, or you may have to institute legal action to successfully recover your funds.

You can recover the full value of the monies that have been enjoyed at your expense. This means both the amount of the money that was paid and possibly its use value while it was erroneously held; courts have allowed interest and bank charges to be reclaimed.

As almost all payments these days are made directly or indirectly from our bank accounts, the first thing to do is to contact your bank. In most cases it cannot simply reverse the payment, but it should begin acting within the sector’s misdirected payments recovery framework to give you the best opportunity to recover the money.

Banks processing digital transactions through the payment services Faster Payments and BACS must act within two working days of being alerted. 

Where the recipient does not dispute that the money was sent to them by mistake, it will be returned within 20 working days. If, for some reason, this is not possible, your bank should advise what action you may take.

Reversing a payment ultimately needs the co-operation of the recipient of the money, so success may depend on whether you know the identity of the recipient. If you know the payee, contacting them as soon as possible will probably resolve the situation. However, if you mistakenly transferred money to a stranger’s account, they need to consent to a reversal of the payment, and you therefore need the support of your bank and the receiving bank to contact that person, and to persuade them to allow the money to be repaid. 

The receiving bank may also freeze an amount equal to the mistaken payment in the recipient’s account.

If the recipient refuses to return the money, you need their details to pursue the matter. These should be requested in writing from your bank. If the bank refuses to provide these details on data protection grounds, you will need to get a court order compelling the bank to disclose this information. Once you have these details, you may contact the recipient directly. If the recipient continues to refuse to repay, you need to take legal action against them.

In the case of a mistaken payment to an employee, while employment law protects them from unlawful deductions from their wages, it expressly allows employers to recover overpayment of salary or expenses. However, if the overpayments were made over a long period of time or was made some months before and has only recently been discovered, an employer is advised to work out with the employee how best to repay the mistaken amounts.

Whoever refuses to return monies, or spends it, may face a criminal charge. So, if you notice an unexplained payment in your account, you should contact your bank immediately to investigate it and have it reversed. Failing to do this may not only result in a charge of theft but also one of assisting in money laundering, if the funds have been obtained illegally.

However, there are some situations where a recipient may keep a mistaken payment. The first is if the recipient has experienced a detrimental change of circumstances linked to the monies since the payment was made, and it would be unfair to force repayment. Usually this means that the money has been spent, and the recipient has no way of repaying. However, there must be a credible argument as to why the recipient believed that the money could be kept and spent – otherwise it would simply be theft.

Another defence to a claim for repayment is that the recipient assumed that the money was ‘good consideration’ for a debt that was owed.

In summary, as the use of cash continues to decline as a payment method, both the banking industry and government are under pressure to provide better safeguards to protect customers. Nevertheless, vigilance and quick action continue to be the best defences against mistaken payments.