Bank froze funds out of misplaced obligation to sender, not its own customer

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Bank froze funds out of misplaced obligation to sender, not its own customer

Categories:

Freezing an account,

Summary:

Leonardo's daughter did some private work for one of her clients. The client transferred $10,000 into Leonardo’s account because his daughter was having difficulties with her own account. However, a dispute arose between the daughter and the client. The client told his bank he did not make the payment, and someone must have gained access to his phone and made it without his knowledge. His bank contacted Leonardo's bank, which froze the $10,000 pending an explanation. The client’s bank then informed Leonardo's bank that its customer intended making a complaint to police. Leonardo's bank decided to keep the money frozen pending the outcome of a police investigation. A year and a half later, in October 2021, police said they would not be taking any action. But Leonardo's bank still refused to release the money, saying the client was still disputing the payment with his bank, and the matter should go to the Disputes Tribunal.

Published:

June 2022

Leonardo took his complaint to us, seeking to have the funds released to him so he could transfer them to his daughter.

Our investigation

The client had not filed Disputes Tribunal proceedings by the time we began our investigation, but soon afterwards a hearing date was set. The daughter and the client agreed to split the disputed amount between them. Leonardo nonetheless continued with his complaint, which was that the bank had acted wrongly by placing a prolonged freeze on his account. The bank said its terms and conditions permitted such a step if there was a dispute over ownership of the funds or operation of the account, or to protect the legitimate interests of a third party. The bank considered the circumstances of the payment suspicious, and said it therefore had an obligation to protect the sender’s funds.

However, we considered whether the bank had acted fairly towards Leonardo. Banks usually freeze funds when a dispute arises between account owners, or it is unclear who is the rightful owner of an account (and thus the funds in it). Disputes between a payer and payee over a payment for services will generally need to be resolved between those parties. We considered it legitimate to freeze the account initially, pending clarification of the circumstances of the payment, but we could not see a basis to keep the account frozen for so long when the bank’s obligations were primarily to its customer – Leonardo. Also, police can issue a restraining order to protect funds, but had not done so.

Leonardo asked for $2,000 compensation for him and $2,000 for his daughter because the dispute had dragged on for two years, causing considerable inconvenience while he tried to sort it out. He had also been forced to manage without internet banking, which the bank had suspended while the money was frozen.