Remember playing Monopoly and landing on Community Chest, then receiving the card “Bank Error In Your Favor, College $200”. I loved that card.
Just like in Monopoly, bank errors happen. In fact, overpayments happen all the time. You could be overpaid interest by your bank, or you could receive too much money from your employer. There was an interesting story on Reddit last week about a guy whose previous employer forgot to stop paying him. How awesome is that!?!?
But what actually happens when you're overpaid? Do you have to pay it back? What if they never find out? What should you do?
Let's dive in and take a look at some common scenarios.
What happens if your bank accidentally deposits some money in your account and it doesn't belong to you? What if your account number was just one number different from Bill Gates, and you suddenly got a deposit of $100,000 in your checking account?
Well, sorry, it's not your money and you're going to have to give it back. Tough luck.
Chances are, the bank will discover the error automatically within 30-60 days as they audit their own accounts. However, it make take longer. Once they do discover the issue, they will formally contact you to resolve it – it will typically come via certified letter. Don't fall for phone calls alone – these could be scams asking you to send money.
If you discover the issue, you should report it to the bank and just save everyone the hassle.
But what if you have online banking and just don't check? It happens. If you accidentally spend the money, and then you receive a notice from your bank, they will most likely work with you on repayment. What if you refuse? You could be charged with theft and go to jail. Not good.
If you can't get a solid resolution from the bank (or credit union), you should contact their regulatory agency: The Federal Reserve Consumer Help Line.
What about the story from Reddit? What if your employer really does forget to stop paying you? Or, what if your current employer just made a mistake.
As you read, this really does happen. But just like a bank error, you are really gaining money you're not entitled to, and you need to let your employer know.
Typically, in these situations, if you're still employed by the company, you'll see it get retroactively fixed on your next paycheck. Yes, this means your next paycheck will be a little lower, but between the error and the fix, it should balance out.
If you no longer work at the company, they will typically work with you to make payment arrangements. You'll likely have to write a check back to the company to repay them. It's important to note that after about 72 hours, the company can't just withdraw the money from your account. If you ever check your online banking statement, you'll notice your paycheck initially goes in under “pending” then it is listed as a true transaction. During this pending phase, it could theoretically be cancelled, but most errors aren't caught that quickly.
If you contacted your employer and they didn't do anything about it, there are several things you should know and do. First, make sure you have written communication with them that you mail and send certified with proof of delivery. This gives you proof that you contacted them and alerted them to the issue.
In some cases, the employer won't take the money back. In this case, you win, but you need to make sure that your W2 is correct and you pay the correct amount of taxes on the money.
Second, if they don't do anything and you don't get a response, there is a statute of limitations on how long they have to collect the incorrect payment. It varies by state, but in most cases after about 10 years you should be safe. And once again, if they do want the money back, make sure you get a corrected W2 and refile taxes – and make the employer pay for all associated costs since it was their mistake to begin with.
So the lesson learned? You still shouldn't spend the extra money.
Government Payment Errors
Another big error comes in the form of government payments – Social Security, unemployment, and more. This type of overpayment is by far the most common, because unlike technical errors above, these errors are the result of paperwork processing. People could submit incorrect information, or be confused about laws and rules, or simply not know. As a result, there are a lot of government overpayments.
If you receive an extra or overpayment from the government, once again, don't spend it. They will discover it and you will have to pay it back.
In these situations, the government will mail you a notice of overpayment of benefits, and it will give you several steps that you can take. You typically have the following options:
- You can ask the government to waive the overpayment
- You can ask the government to reconsider the initial benefits request (in turn, fixing the overpayment)
In certain cases, the government may waive your repayment. You typically have to show two things:
- The overpayment was not your fault. This means that you didn't falsify any information on the forms you filled out to qualify for the benefits.
- That paying the money back will result in a financial hardship. This is a harder one to prove because you shouldn't have received the money to begin with, but there may be circumstances where you could qualify.
What's Moral and What's Legal
In these cases, you have to ask yourself – what's moral and what's legal? Is it moral to keep money that isn't yours? Even if it's legal to NOT report it, are you morally obligated to?
I think in all of these cases, you simply need to report it as soon as you notice it. You may get lucky and get to keep the money, or you may have to pay it back. But, at least by dealing with it quickly and proactively, you take a potential future burden off your shoulders.
Have you ever had a bank error in your favor? What happened?