The courts have been considering who, if anyone, is liable to a customer when CHAPS (Clearing House Automated Payment System) transfers go wrong. In July 2014, the Court of Appeal handed down its decision concerning accuracy of CHAPS payment requests in Tidal Energy Limited v Bank of Scotland.
The decision is favourable for banks as it determined that minor inaccuracies in the CHAPS request would not invalidate the bank mandate.
CHAPS is one of the most frequently used same day payment system for cleared funds. Its principal benefit is the speed of payment within 1.5 hours.
Tidal Energy, which was a customer of Bank of Scotland, made a CHAPS payment request for £217,000 to be sent from its account to a supplier. However, Tidal was the victim of fraud and had been given incorrect account details. The bank debited the funds from Tidal's account pursuant to the CHAPS request.
Tidal brought proceedings against the bank on the basis that the account name on the CHAPS mandate did not match the name of the recipient account and therefore funds should not have been taken from Tidal's account. Or, viewed another way, Tidal had named the correct beneficiary but used the wrong sort code and account number.
Both the High Court and Court of Appeal determined that an error in the name of the CHAPS form did not invalidate it. When the customer completes a CHAPS form, it contracts with the bank on the bank's accepted practices which only require verification of the sort code and account number.In fact there is no requirement to name the recipient at all.
Tomlinson LJ stated that 'the hallmark of CHAPS is speed' which would be economically impossible if the recipient's name and other details had to be checked against the account details in all cases.Further, the recipient's details were not in the control of the bank sending the funds and such information is confidential between the payee and the recipient bank.
This is good news for banks and a reminder to customers to take care when completing CHAPS request forms. If an error is made on a CHAPS form, the payer should seek urgent relief in the form of a freezing order against the unintended recipient.
The author Charlotte May is a member of Burges Salmon's Disputes and Litigation team led by David Hall.
FAQs
Can a CHAPS payment go wrong? A payment can be sent to the wrong account if there's a mistake on the CHAPS form. So, if you realise that this has happened, you should contact your bank straight away.
Can a CHAPS payment go wrong? ›
If an error is made on a CHAPS form, the payer should seek urgent relief in the form of a freezing order against the unintended recipient.
What to do if a CHAPS payment goes missing? ›
If it's been more than a day since the CHAPS payment was sent, you should speak to your bank about the payment.
What are the disadvantages of CHAPS payment? ›
CHAPS payment cons
- They are expensive.
- Their cost makes them unsuitable for batch or bulk payments.
- They cannot be used for international payments.
If a CHAPS payment has already left your account then it can't be amended or cancelled.
Are CHAPS payments guaranteed? ›
What is CHAPS? CHAPS is a way of sending money that's guaranteed to arrive on the same day you send it. This is useful if: You want to send an amount of money above the Faster Payments limit.
Do CHAPS payments clear immediately? ›
A CHAPS payment is a same-day transfer between banks that can be used for large amounts of money. If you need to pay someone straight away or transfer a large amount of money, CHAPS transfers allow you to make same-day, high-value electronic payments.
Can CHAPS payments be delayed? ›
There might be delays if we need to speak to you about your payment before we send the money. If you set up the payment after the cut-off time, on a weekend or on a public holiday, we'll usually send the payment the next working day. There's a £25 fee for each CHAPS payment.
How secure is a CHAPS payment? ›
CHAPS – also known as Clearing House Automated Payment System – is a type of high-value, bank-to-bank payment system that provides irrevocable, settlement risk-free, and efficient payments. Most traditional high-street banks are direct participants in CHAPS, as are a couple of international and custody banks.
Is CHAPS different to bank transfer? ›
CHAPS is a more expensive payment option because your bank has to pay for the software and hardware needed to complete the transfer. It costs somewhere between £25 and £35 per transaction, so CHAPS tends to be reserved for high-value transactions. Bacs is a much cheaper way of transferring money between banks.
Operating hours: The CHAPS system opens at 6am each working day. Participants must be open to receive by 8am and must send by 10am. CHAPS closes at 6pm for bank-to-bank payments. Customer payments must be submitted by 5.40pm.
How are CHAPS payments processed? ›
Payments are processed instantly when the CHAPS system is open between 6am-6pm Monday-Friday or within one working day when the instruction is received outside of these hours. Every payment is irrevocable, meaning it can't be changed, reversed or recovered.
What is CHAPS withdrawal? ›
CHAPS (Clearing House Automated Payment System) is a Telegraphic Transfer system which allows you to make same business day withdrawals and deposits for your savings accounts.
What happens if a CHAPS payment goes missing? ›
As with any transaction, it could have been flagged for fraud/money laundering and been put on a hold for additional checks. This could have been done by both the solicitors bank and also Monzo and doesn't matter if it was a quick CHAPS payment it would still need to be investigated.
How do you reverse a money transfer by mistake? ›
- You must immediately contact your bank's customer service if the details seem incorrect.
- Your bank can help by providing the contact details of the unintended beneficiary.
- Follow up by requesting a transaction reversal and asking the unintended recipient to return the funds to you.
Contact the customer service department of your bank or UPI service provider right away. Provide all pertinent information, such as the transaction reference number, the date, and the amount. The reversing process cannot be started until this information is obtained.
What happens if money is transferred but not received? ›
If money is transferred but not received, the sender should contact the bank or service used to initiate the transfer to track the transaction. They can also contact the recipient's bank to inquire if the funds have been received.
