Submission - Joint submission to the 2007 Review of the Electronic Funds Transfer (EFT) Code of Conduct to ASIC (May 2007)

Q41 – To what extent, and how, should the Code address the issue of mistaken payments? Discuss the usefulness, practicality and cost of implementing some or all of the measures outlined, as well as any other measures you consider appropriate.

Consumer stakeholders are concerned at the ease with which mistaken payments can occur in Internet banking and the difficulties subsequently faced by consumers when they do occur. The onus is on financial institutions to ensure that their Internet banking systems are able to minimise opportunities for basic errors.

Other systems, such as BPay, Paypal, Direct Debits etc all have built in mechanisms to minimise mistakes and provide confirmation of the transaction to the consumer.

It appears that financial institutions are working on upgrading systems so that mistakes can be reduced. However, this may take some time. In the intervening period consumer should not be exposed to increased liability and /or difficulties in correcting mistakes.

Current terms and conditions are particularly harsh in relation to mistaken payments. For example, some banks will not even reverse mistaken transactions when both accounts are with the same bank. The Westpac terms state:

Westpac cannot reverse transactions you make in error, either to Westpac or non-Westpac accounts. Should an amount sent by you in error not be returned automatically by the receiving financial institution, it may not be recoverable at all.

Consumer stakeholders support an eventual resolution of this issue to be based on a technical solution. This might involve the matching/checking of account names against account numbers, double entry of key data, and/or the widespread use of receipts and confirmation notices that include the name of the funds recipient.

In the interim, consumer stakeholders would be willing to consider the inclusion of the Banking and Financial Services Ombudsman approach to liability in the Code. This would require a Clause allocating liability to the account institution if funds are transferred to an account that does not match the account name entered by the consumer, irrespective of the account number entered. The position of the financial institutions might be assisted by the introduction of a chargeback regime for mistaken payments. Some improvements in dispute resolution in relation to mistaken payments may also be required.

In addition, the parties to this submission have read and endorse the recommendations on this issue contained in the Consumer Caseworker Submission. In particular their comments below:

Mistaken payments occur due to the Internet banking interface. The means for providing a safe interface system entirely lies with the code member, and by not having the best practice methods in place consumers are at risk of transferring funds incorrectly. Currently, unless the institution makes the mistake themselves the consumer will not be reimbursed unless the member’s hand is forced by the Banking and Financial Services Ombudsman. Clearly a more effective system is to discover any issues with the payment at the bank’s level, before the transfer takes place.