Recovering Mistaken Payments Before the Financial Ombudsman

Abstract

In 2017, an estimated number of 8.445 billion payments were made in the UK by bank transfer. UK Finance estimates that by 2027, this number will grow to 9.829 billion payments. As more payments are made, it is likely that the number of mistaken payments will also rise. While payors can recover the mistaken payment from the recipient in unjust enrichment before the courts, such actions are often costly and risky. The aim of this article is to consider whether a payor who makes a mistaken bank transfer may be able to obtain substantial remedies by bringing a complaint before the Financial Ombudsman Service (‘FOS’). Its conclusion is that the mistaken payor can. The FOS provides substantial remedies to the mistaken payor in three different situations: against the paying bank or receiving bank for failing to take reasonable steps to help the payor recover the funds, which constitutes a breach of the Payment Services Regulations 2017; against the receiving bank in unjust enrichment when the recipient’s account is overdrawn; and against the recipient in unjust enrichment where the mistaken payor is a financial firm subject to the FOS’s jurisdiction. In the latter two situations, the restitutionary remedies awarded by the FOS appear to be even more generous than those available before the courts. These findings suggest that the FOS does provide a useful avenue of recourse to the mistaken payor. However, it also identifies some problems with the FOS’s approach and reasoning in awarding restitutionary remedies and argues that where possible, the Ombudsman should aim to follow general rules and principles of unjust enrichment law rather than depart from them. Not only is this likely to protect the Ombudsman from legal challenge, it is likely to lead to more normatively justifiable results.