Imagine that, somehow, a bank error results in $10 million being accidentally deposited into my checking account (these things happen). Let’s say I spend $1 million on a house, I flip it, and thanks to a hot real-estate market, I sell it for $1.5 million.
Months later, the entity that made the erroneous deposit wants their money back. Are they also entitled to the half a million I made with the money that wasn’t mine? Is it considered illegal gain and subject to forfeiture?
They can only lay claim on what was actually lost. As long as you have the full $10 million that they are asking for back they can’t do anything. If you are short a million when they come to collect you could have issues.
But I question if they may be able to charge you interest if they can show you used the money like it was a loan. But why would they dig into your personal transactions if they got their money back?
I guess a more precise question would be - if the bank discovers the error and you (knowing it was an error) just left it there, would they claw back the interest earned also? $1M at 3% is $30,000 so a month of this would yield $2500.
The other question would be - how would they know you made money off their million?
IANAL.
My inclination would be to say no. When they transferred the money, it was their error. Should they want their money back and there was an issue, they would go to (civil) court. The court would set it right - it would award the plaintiff the amount transferred in error, and perhaps lost interest at market rate.
Mind you, holding on to an obviously mistaken transfer where you know the money is not yours is a criminal offense, and you are obliged to return it when asked. (Letting it sit until they ask is not - but the risk would be they ask for the money and it is not immediately available.) Using the money as collateral for a $1M loan would be fraud, since its not yours to collat.
I don’t see how they could collect interest without a previous arrangement like a contract.
I wonder if you immediately notified the bank of the error if they would give you some kind of reward… and I’m not talking about a toaster. IOW, reward you for doing the right thing and not making life difficult for them, which would be easy.
Apparently not…
IANAL, but as I understand it, the bank would only have the right to the original sum of the mistake. They have no right to interest or anything you earn off the money.
Imagine if you got $10 million by mistake and then just kept it in checkings, no interest earned. How would it be fair for the bank to demand the $10 million back and also want $200,000 on top of that for missing interest when you didn’t earn a dime?
I can’t see a court awarding any more interest than would have been paid by the account into which the funds were erroneously deposited in the first place. If someone accidentally dumps $1M into my checking account that pays 0.01% annually, they’ve got no business demanding 3%, irrespective of what I may or may not have done with their funds before they discovered their error.
This happened a long time ago, before poor people routinely had checking accounts. My father asked for a money order for, let’s say, $10, from the bank where he had a savings account (and where he cashed his pay checks). The teller cut a check for $8010. Without looking at it, my father stuffed the check into an envelope and mailed it to the electric company to pay his monthly bill. The teller then discovered the error and frantically went to find my father, who no longer had the check. That was the last he heard about it, but I guess the bank and the electric company sorted it out between themselves.
An interesting twist would be if the interest was gained from investments with the bank that made the error to begin with.
Then there was the incident two years back where Citibank accidentally transferred $900 million to Revlon:
I’m not a lawyer but I think that there are statutory interest rates that could come into play. If the OP is contacted by the bank about the error and drags his feet in paying them back so that they have to take him to court, then he would likely be on the hook for the principal and something like 4-6% annual interest for the time he held the money until they could get it back.
This makes sense - if they made the mistake, the most they could ask for was actual interest paid or a statutory rate, whichever is less. But once they ask for it back and you fail to deliver in “reasonable” time, then the responsibility falls to you to ensure that they are made whole from that point on, including interest lost at a fair market rate - because once you withhold the return, you are the one at fault. Or… a judge could pull any reasoning out of their behind, because apparently that’s the situation today.
Citibank accidentally transferred $900 million to Revlon’s creditors instead of just paying the interest on a loan not due until 2023. And while the initial judgement was “They can keep the money”, Citibank appealed and Revlon has been paying the interest as if the creditors hadn’t been accidentally paid off. Revlon filing for bancruptcy might confuse things though.
And now Citi’s won the appeal.
Its actually criminal to make use of it, if its a significant amount above normal balances, that you must know its an error, and so you may as well tell them…
Right. Now if I already had more than $10 million bucks in my bank account I could say I didn’t realize it was a mistake, but with my typical balance which tends to be somewhat less than $10 million clams they aren’t likely to accept it as a rounding error.
I recall reading of a similar case, where the bank deposited some hefty sum (thousands, or tens of thousands?) and when the person reported it, they insisted they had not made a mistake. The person moved it to another bank and waited for the bank to wake up… took a few months.
But yes, taking something not yours is illegal. I suppose the technicality is that what’s in your account is not “yours” until you do something like take it away from the bank.
Do you remember the reams of Terms and Conditions you signed when you opened an account (these days clicked yes on online).
They would cover situations like this.
Sounds like you are referring to this story bout Patrick Combs: Subscribe to read | Financial Times He did a one man show about it a few years ago. It’s a pretty amusing story. He kept the money in a safe deposit box, and returned it once the bank asked for it nicely.
I thought of this thread when I saw this story this morning:
The OP’s hypothetical about a banking error leading to a big windfall is a recurring event. The would-be beneficiary can’t keep the money.