Bank had no power to put ‘money mule’ into unarranged overdraft

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Bank had no power to put ‘money mule’ into unarranged overdraft

Categories:

Overdrafts, Fraud & scams,

Summary:

In May 2023, Riley’s bank account was credited $88,000, and almost immediately the money was transferred out via an international payments platform. The funds were stolen and had gone via Riley’s account to a scammer. Riley’s bank could not recover the money and debited the loss to Riley’s account, leaving him with unauthorised overdraft of $85,000.

Published:

May 2024

Riley said he knew nothing about the money and had been duped into acting as a “money mule”. The bank did not accept this explanation, and he complained to us.

Our investigation

Riley said that, since he knew nothing about either the deposit or the withdrawal of the funds, the scammer must have gained access to his internet banking. However, we found evidence to suggest otherwise. The logs for Riley’s internet banking indicated he had made the $88,000 transfer using his iPhone. Even so, we considered there was still no clear evidence he had been complicit in the scam, or that he stood to benefit from it. Scammers often convince money mules there is a legitimate reason for transferring funds, such as that they had accidentally made a payment to the wrong account and asked the recipient to forward the funds to the “intended recipient”. The fact Riley had forwarded all the money and left none for himself indicated he did not benefit from the scam. Riley was only 18 years old at the time of the $88,000 payment and we considered it likely that he had been taken in by a scam himself.

We also looked at whether the bank had the power to reverse the payment into Riley’s account, leaving him in an unarranged overdraft. The bank said its terms and conditions gave it the power to reverse fraudulent payments, even where doing so would put the customer into unauthorised overdraft. We did not agree. The bank had the power to reverse fraudulent payments into a customer's account, but it did not have the power to put the customer into unarranged overdraft when doing so. The terms and conditions had an entire section devoted to describing when a customer could be put into unarranged overdraft, but the section did not include any reference to reversing fraudulent payments. We therefore concluded that the bank did not have the power to reverse a fraudulent payment when the funds had already gone and reversing the payment would put the customer into unarranged overdraft.