Bank without legal basis for using collection agency to get $70,000

Categories:
Mistaken payments
Summary:
Sophia’s business partner owed her $130,000. The business partner instructed his bank to break a $200,000 term deposit and pay her what she was owed. The bank mistakenly paid Sophia $200,000. When it realised its mistake, it asked her to repay $70,000.The bank warned it might take legal action or use a debt collection agency if she did not.

Sophia said she couldn't because she had already spent the money. The bank engaged a collection agency, whose costs added $12,000 to the amount sought from Sophia.

Our investigation

Sophia complained to us that what the bank did was unfair, and it should not have disclosed her details to the debt collection agency without her consent.

Sophia had no accounts at the bank, and had not, therefore, agreed to any terms and conditions that would have ordinarily entitled the bank to use a debt collection agency.

We asked the bank to explain its actions. It said it was relying on the law of restitution. We accepted the bank might have had a right to claim for restitution, but first it needed to establish this in court, where Sophia would have the opportunity to present her defence. If such legal action were successful, it could recover the money from Sophia.

We told the bank it had no legal basis for using a debt collection agency. It then withdrew the debt and wrote off the collection costs. We told Sophia the bank still retained the right to take legal action to recover the debt.

Outcome

Sophia was satisfied with the outcome.

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