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Citibank’s $900 million fiasco: Here's what happens if you commit such a mistake?

Citibank’s $900 million fiasco: Here's what happens if you commit such a mistake?

Citibank’s $900 million fiasco: Here's what happens if you commit such a mistake?
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By Anshul  Feb 18, 2021 6:13:19 PM IST (Updated)

A US District Court judge recently ruled out Citibank’s lawsuit seeking a full refund of the money it mistakenly wired to a group of lenders of cosmetic company Revlon.

A US District Court judge recently ruled out Citibank’s lawsuit seeking a full refund of the money it mistakenly wired to a group of lenders of cosmetic company Revlon. The judge added that the transfers were “final and complete transactions, not subject to revocation.”

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In what could be termed as one of the biggest mistakes in the banking history, Citibank had transferred $900 million to the company’s lenders, when it intended to send only $8 million.
According to news agency Reuters, the New York-based bank blamed human error for the gaffe, and some lenders returned the money they were sent. However, 10 asset managers, including Brigade Capital Management, HPS Investment Partners and Symphony Asset Management, refused, and Citigroup sued to recoup approximately $501 million they received.
Well, that would be a rare case.
But, what happens if such a thing happens with the customer?
Most banks across the country offer instant money transfer facilities such as National Electronic Funds Transfer (NEFT), Real-Time Gross Settlement (RTGS) and Immediate Payment Service (IMPS). Using these services, users can transfer funds from one account to another through mobile phones or computers.
Users are required to add the payee’s name while making an online fund transfer. To register the beneficiary, customers need to enter the account holder's name, account number, and Indian Financial System Code (IFSC).
As a transfer to the beneficiary is primarily made on the basis of the account number and IFSC, the sender should take utmost care while filling in the details.
As per RBI guidelines, banks give customers two fields for entering the account number, which means the customer will have to punch in the account number twice.
“One field is encrypted, meaning the customer cannot see the account number entered in this field. In the second field, the account number entered is visible. Only when the details in both fields match is the transfer is initiated,” says Topendra Bhattacharjee, Head-Digital Banking, RBL Bank. This reduces the chances of entering the wrong account number.
However, it is still possible that a user may enter the wrong account number twice. Also, he may add the wrong IFSC while making the online transfer.
In such a situation, the transfer may be initiated despite the wrong details having been filled.
Let's understand these scenarios:
What happens if somebody enters the wrong IFSC (different branch of the same bank)
The likelihood of such a mistake is low as most of the banks ask customers to choose the name of the bank and the name of the branch from a dropdown list, to get the IFSC. But some lenders may allow customers to write the IFSC.
Now, if in this case transfer takes place, banks will generally reverse the money automatically to the account provided the account number is correct and the wrong IFSC mentioned belongs to the same bank.
"If the RTGS/NEFT credit does not reflect by the usual turnaround time, then the beneficiary and/or the remitter should contact their respective banks to resolve the issue," says Sahil Arora - Director & Group Head, Investments, Paisabazaar.
What happens if somebody selects the IFSC of a different bank?
In this case, if the latter bank has an account with a matching account number, the fund transfer may take place.
What happens if somebody enters the wrong account number?
If a wrong account number provided by the remitter does not exist, then the payee bank will return the transferred amount and the remitter will get back the money.
But if the wrong account number provided by the remitter actually exists, then that account number will receive the transferred amount.
In that case, the remitter has to contact his bank and make an application to resolve the issue.
Upon receiving the application, the transferor bank will contact the payee bank to block the wrongly transferred credit. If the customer receiving the wrong credit acknowledges the same, then the payee bank will deduct the transferred amount from his account and return it to the transferor bank to re-credit the remitter, according to Arora.
If the customer receiving the wrong credit refuses to acknowledge it, then the sender will have to resort to legal action against the person who received the money by mistake.
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