In 2013 I published a letter from CH of Christchurch in Dorset who reckoned she was entitled to keep £35,000 from a cheque that was cancelled eight days after she had paid it in. The bank, the Co-operative, disagreed and, in spite of its own terms and conditions, reclaimed the payment from her account.
CH appealed to the Financial Ombudsman Service, which awarded her £500 because of the Co-op’s delays and misinformation. However, the ombudsman declared that, despite those terms and conditions, it would not be “reasonable” for her to keep the full £35,000.
CH took her case to the small claims court and, in a ruling that has repercussions for banks and consumers, she won. The argument centred on the little-known and whimsically named rule, “certainty of fate”, introduced by the Office of Fair Trading in 2007.
It allows customers to keep the proceeds of a cheque once six working days have passed since it was paid in, even if that cheque bounces. Up to then, the bank can debit a deposit if the cheque fails to clear.
The rule was designed to protect customers from fraudulent transactions, but this case shows that it can also lead to customers reaping huge rewards from a bank’s incompetence.
CH had deposited a cheque for £35,000 made out by her mother on
5 December 2012. When it had not appeared in her account eight days later, the bank admitted that it did not know where it was. Concerned it had gone astray, on 13 December the mother cancelled the original cheque and CH paid in a replacement. The next day two credits of £35,000 showed on the account.
The bank confirmed that one of the cheques had cleared, but it couldn’t be certain which one. However, it assured CH, over several phone calls, that the first £35,000 credit was hers to keep under the “certainty of fate principle”, but that both sums would be debited from her mother’s account.
CH therefore advised her mother to cancel the second cheque so that she would only be liable for one payment, and withdrew the first sum.
Two days later the bank changed its mind about honouring the first cheque and debited £35,000 from the account, claiming “unjust enrichment” and, as CH wrote at the time, “applying massive fees for what it now called an unauthorised overdraft”.
She discovered she was overdrawn by £26,154.
The Co-op, while still insisting that one of the cheques had cleared, reclaimed the £35,000 which she had already withdrawn by helping itself to £9,000 of savings left in the account and imposing fees and interest for the “unauthorised” overdraft to cover the balance. After CH contacted The Observer the Co-op repaid the fees and interest and awarded her £150 in goodwill, increased by the ombudsman to £500.
CH decided to apply to the small claims court for her £9,000 of savings that the bank had taken, although given that she had already withdrawn the £35,000 she was not out of pocket.
“Banks make the rules and the rules are clear that I was entitled to keep the money under the ‘certainty of fate’ principle,” she says. “It seems that banks manipulate their own rules to avoid losses made by their inefficiency.”
The judge at Bournemouth county court agreed. Not only has he awarded the £9,000, he concluded that she would have been entitled under the Co-ops’ own terms and conditions to keep the entire £35,000.
The Co-op was refused leave to appeal. Since then, CH has asked the Co-op for the balance of the £35,000 under the six-day rule, but has been refused. “The bank does not agree with the judgment and believes it is wrong in law,” says a Co-op spokesperson. “However, the bank has paid the amount awarded by the court and will not be offering any further sums and considers the matter closed.”
CH says she pursued the matter as a point of principle. “I hope that other people who have been obliged to wait, at their bank’s pleasure, for their cheques to be cleared whilst being told a lot of nonsense about clearing times can now take heart from the court’s decision.”
