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I sent a £40,000 loan to my son by mistake and he spent it

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I am about to lose my home and don’t know where to turn. My partner and I took out a second £40,000 mortgage through Nationwide last year. It was to be paid into my partner’s account, but it didn’t arrive. I made several calls to Nationwide, which stated that the money had been paid, but refused to confirm the recipient’s details, citing data protection.

The system wouldn’t allow me to access my online application, and it was only when direct debit confirmation arrived through the post I realised the loan had been paid to my son’s new Lloyds account. I’d accidentally inputted his account number along with my partner’s name on the mortgage application. My son said he had not received any money and I spent the next five weeks vainly trying to trace it. But eventually, it was discovered that the £40,000 had gone into my son’s account five weeks previously and that he had spent it.

My life has been horrific since then. My son strung me along as my life was falling apart, and is now facing a criminal trial. I am the guarantor for his flat, so if he stops paying the rent I will be liable for that, too. Lloyds has not responded to Nationwide, or to me. Why can a bank make a bank transfer when the name doesn’t match the account number? And why will a bank alert me if an odd amount is spent, yet my son, a new Lloyds customer on the minimum wage, can receive and spend an enormous amount in a single day without any scrutiny?

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We now have to repay the lost loan and the debts it was supposed to cover. I’ve lost everything, including my son.
KM, Darlington, County Durham

Your heartbreaking plight shows the hidden cost of instant digital payments. Huge sums can be transferred and dispersed within hours, which is why there is an increasing onus on banks to impose security measures to protect customers from fraud or error. One of those is confirmation of payee (CoP), long resisted by the banking sector as too complex, but finally introduced by the major banks in 2019. Crucially, this checks that the payee account name and number match up. So why didn’t it happen in your case?

Nationwide says it doesn’t use CoP for payments when the customer isn’t present, and the Payment Services Regulator confirmed that, while it requires banks to verify the account name when processing payments from customers, it’s not mandatory for transactions between banks when the customer provided payment details in writing. If it had been, the payment would have failed and you would have discovered your mistake. Meanwhile, anti-money laundering rules require recipient banks to query unusual transactions and, if necessary, to freeze the sums while they verify them. However, this usually applies to faster payments, a form of electronic instant payments, sent by an individual.

Lloyds says that sums received by bank giro credit directly from another bank are not typically regarded as suspicious, as the sending bank will have carried out its own checks.

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Now clearly you were at fault, for it is crucial to check and double-check account details, especially when large sums are at stake. Unsurprisingly, you want the banks to refund the lost £40,000 because their systems allowed the mistake to go through undetected. The voluntary scheme to refund fraud victims only applies to those tricked into transferring money to a scammer. Although you are a victim of fraud, that happened because you had misdirected the loan.

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However, the banks are not totally blameless. Lloyds, in particular, has been dilatory in its responses. When you wrote to me, three months after the mispayment, the £10,581 remaining in your son’s account had still not been returned to you. Lloyds and Nationwide blamed each other until I discovered that Lloyds had lost, or ignored, a crucial document sent by Nationwide two months previously to allow the funds to be released.

Only after I’d mediated between both companies did the money finally reach you – four months after the error came to light.

Nationwide says: “We have made every effort to help the members recover their funds, including using the indemnity process which is normally only used for fraud cases. We appreciate this took a long time, but there was nothing further we could do until we heard back from Lloyds.”

Lloyds says: “As soon as we were made aware of what had happened, we took steps to secure any remaining money in the account so that this could be returned to Nationwide. We are extremely sorry for the delay in processing the indemnity form.”

Your case is now with the Financial Ombudsman Service, which has the power to decide whether there has been any shortfall in service, and whether any compensation is due. Since you wrote in, your son pleaded guilty to dishonestly retaining a wrongful credit and was given a 16-month suspended prison sentence.

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