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A call for non-judicial resolution of erroneous bank transfers 13 Dec 2024

In recent months, customers experienced extended periods of service disruptions on the electronic channels of at least two major Nigerian banks. The general explanation was that the banks were migrating from their existing core banking software to a new version. Reports of failed transactions, frozen accounts, disappearing balances, and erroneous debits and credits on customers’ accounts rocked the system upgrade.

But cases of erroneous transactions are hardly limited to such occasional system disruptions. Erroneous transactions are a daily occurrence as electronic banking and e-payment continue to grow in popularity in the country, driving up daily banking transaction volumes and giving credence to the cashless policy of the Central Bank of Nigeria (CBN).

According to data from the Nigeria Inter-Bank Settlement System (NIBSS), the value of electronic payment transactions in the country rose to N600 trillion in 2023, from N387 trillion in 2022. Point of Sale (POS) transactions grew to N10.73 trillion in 2023, which represents a 28% growth compared to the total value of N8.39 trillion the previous year. This trend has continued in 2024, with payment transactions carried out via the electronic channels of banks and financial technology (fintech) firms reaching N234.4 trillion in value in the first quarter of the year.

But this positive development has had downside effects, including erroneous fund transfers. “Erroneous transfers” or “accidental bank transfers” is a blanket terminology that refers to transfers carried out by mistake, fraud, or other unintended reasons on accounts of bank customers. The mistakes are often honest, like typing the wrong bank account number, selecting the wrong recipient from a list of saved beneficiaries, selecting the wrong originating account where a customer has more than one account with a bank, or inputting wrong amounts. Customers using fintech solutions that use phone numbers as account numbers are likely to commit the error of sending money to wrong recipients, just like we often dial wrong numbers when making telephone calls.

Double or multiple debits can arise from technical glitches. At such times, the customer may not pay close attention to the directive provided on the banking or e-payment platforms. However, fraudsters can make unauthorised transfers from the accounts that they have compromised, before the owners or banks are able to temporarily suspend transactions from such accounts.

The CBN and the courts are the two main regulatory bodies that provide interventions when fund transfer errors are not quickly resolved. The CBN’s Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in Nigeria 2018 provides a guide on how erroneous transfers should be handled. Where it is a bank’s error, internal processes will be used to rectify the issue.

The central bank recommends refunds as the first step to an amicable resolution of erroneous transfers. However, this can be complicated if, for instance, the sender is unable to straightaway identify the wrongful recipient to the bank. Where the identification is made, the sender would have to also convince the bank that the transfer was, indeed, erroneous. Where there are two different banks involved in the transaction, as it is often the case, the sender’s bank is required to inform the recipient’s bank. This could result in a Post No Debit (PND) instruction on the recipient’s account until a valid consent is obtained for the reversal of the transfer. Where the recipient refuses to give consent for the reversal of the inflow into his or her account, nothing more can be done by the banks without an order of the court.

The CBN regulation is time conscious. It requires the internal auditors of the sending and receiving banks to mediate between customers within two weeks of complaints. But the practicality of this provision or its effectiveness is uncertain. And the PND lien that may be placed on a beneficiary’s account, upon a complaint, does not last for more than two weeks without a court order.

But the recourse that involves the courts may unintentionally exclude customers involved in low-value transactions. Such hapless, poor customers would not be able to wait for a legal resolution even if the process doesn’t cost them money – which is unlikely to be the case. Even for richer customers, certain services may be restricted to them pending a court decision on their matters. While such customers may continue relationship with their banks, they may be unable to use electronic fund transfer channels or carry out activities such as providing references or guaranteeing credit facilities until their matter is resolved.

A judicial resolution would involve the filing of a legal action. This requirement of a court order, often referred to as a ‘writ of attachment’ or ‘order for recovery’, to rectify erroneous transactions – even when both the sending and receiving banks hold clear evidence of the mistakes – entails a process that is often frustrating, time-consuming, and costly. It creates significant delays and expenses for the customers and can pose a challenge to the financial institutions involved. A legal order that may compel a bank to act could take weeks or even months to obtain.

The foregoing calls for more effective non-judicial mechanisms for resolving erroneous bank transfers. Banks thrive on a timely provision of quality service for their customers. Where they have to wait for a court order to address a customer’s redressal need, the significant delay that the process entails could prevent other transactions and loss of customers.

One alternative resolution mechanism is enhanced cooperation among the banks. A more collaborative approach between the sending and receiving banks could eliminate the need for customers to engage in costly and time-consuming litigation. Also, regulation should require banks and other providers of digital finance to develop internal protocols that allow them to reverse incorrect transfers quickly, especially when the errors are clearly documented.

A centralised clearinghouse for disputes should also be developed to act as an intermediary between banks and customers. Such a mechanism should be governed by the CBN but may be housed with NIBSS as the provider of centralised, digital financial infrastructure for the banking system. This will provide a formal, yet non-litigious, route to recover funds.

Another solution is for banks and fintech solution providers to implement more sophisticated automated systems that prevent common transactional errors. For instance, customers could be prompted more clearly to confirm the recipient’s account details before completing a transfer. Banks could also use biometric identification or two-factor authentication (2FA) to verify large transactions.

While the current legal framework is designed to protect consumers, it has inadvertently created a bottleneck in addressing simple financial mistakes, leading to stress or likely injustice for the average bank users. With the growing adoption of digital financial services in Nigeria, priority attention should now be given to the development of non-judicial solutions that prevent cashless transaction errors and deliver timely and cost-efficient dispute resolution when mistakes occur.

The future of banking in Nigeria depends not only on legal reforms but on smart, technological, and ecosystem solutions that balance innovation with consumer protection.

Funmilayo Odude is Partner at Commercial and Energy Law Practice (CANDELP).