Banks’ Liability regarding Erroneous Electronic Funds Transfers (EFTs)

Abstract

Electronic Funds Transfers are an important feature of our everyday life. But when they go bad, they might not straight-forward solutions for sharing liabilities, particularly if we examine different legal systems such as the New York and English ones. Banks have set safeguards in place to protect themselves in case of these mistakes, however the Citibank case proves that these may not be enough and need to analyse basic principles, as are the Law of Restitution and Finders Keepers. According to these principles, the beneficiary may be entitled to keep the sum transferred incorrectly as long as he was unaware of the mistake. Damages are to be considered, as well as further safeguards, however, the question arises in how to handle mistakes in EFTs. The New York system has its ground in EFTA, a consolidated legal framework, while the English system still follows precedent and rules in equity, for example the `law of restitution` or the `mistake of fact`. This paper follows a critical approach in assessing which of these are better positioned to answer the fundamental question as to how to best deal with erroneous EFTs.