Electronic Funds Transfers May Involve Unexpected Risks

Electronic Funds Transfers May Involve Unexpected Risks

When Alexander Nachaj needed to transfer a down payment to buy a house, he didn’t worry too much about it, he just went to his bank branch to send the money to the notary.

Posted at 12:55 pm

Ian Bickis
the canadian press

Nachaj says he asked the teller at his TD Bank branch to double-check the numbers because he had to sign a form that released him from any liability for the $18,000 deposit. The teller then made the electronic funds transfer.

And then the money disappeared.

Thus began the journey of the man from Saint-Hyacinthe in the Canadian electronic transfer system. The vast majority of the time, the latter successfully transfers the money safely and accurately, but as Mr. Nachaj discovered, he is far from foolproof.

It’s hard to explain what went wrong in Mr. Nachaj’s case as TD Bank declined to discuss the details of the case, but says it took several weeks to get a response on where the money went.

“It’s mind-boggling that in our time a transfer can disappear into the mist for so long, with no one taking responsibility or even being able to know what happened,” he said.

Meanwhile, Mr. Nachaj was at risk of losing his new home, in an active real estate market, and had to put together another down payment with the help of his family and then send that money, also by bank transfer.

“It was like walking on a tightrope, or something like that, it was the scariest thing I’ve ever had to endure, because I wondered if it would happen again. »

The second payment was made normally. This was good news, because part of the concept of wire transfers is that they are generally designed to be irreversible, so that the recipient can use the money with confidence, right away.

“As soon as there are mistakes, we have very big problems,” explained Werner Antweiler, an international finance expert at the Sauder School of Business at the University of British Columbia.

“Bank transfers are problematic because once they are in the system they cannot be retrieved and that is part of their function. »

A source of complaints

It is not clear how often wire transfers fail, but they are among the top five sources of complaints about banking products filed with the Ombudsman for Banking Services and Investments, with around 30 cases last year. From rival ADR Chambers Bureau of Banking Services, wire transfers are among the top 10 sources of complaints.

Even if the figures as such are quite low, the sums involved are often significant. Most of the complaints also do not reach the external mediators, including that of Mr. Nachaj. In his case, after a few months, the bank’s internal investigation led to the return of his original wire transfer.

TD spokeswoman Caroline Phémius said in an email that when a transfer is lost, the bank works with its customers to try to recover the funds.

“When there is an irregularity in a bank transfer, we take the situation very seriously, as we value the trust of our customers. »

The risks surrounding a bank transfer and the impossibility of checking in advance that it will be directed to the correct place are enough for many notaries to avoid using them as much as possible.

“I don’t encourage our members to wire money, simply because if it goes wrong, we’ll be held accountable,” said Daniel Boisvert, president of the British Columbia Association of Notaries.

Mr. Boisvert thinks a more verifiable system would be great, but in the meantime, his staff still visit the bank up to three or four times a day to deposit physical money orders. And while he thinks big deals like buying a house are best done in person, there are workarounds like arranging with a lawyer in another city who can accept a wire transfer.

The other big reason Mr. Boisvert avoids EFT is fraud, pure and simple. The Canadian Center for Cyber ​​Security has warned in recent years of a rise in crime with malicious individuals intercepting emails and inserting their own account details, to which the unsuspecting customer then transfers the money.

“It’s just terrifying to me, and I’m sure it’s terrifying to other notaries,” argued Mr Boisvert.

possible solutions

Solutions are emerging to at least reduce the risk of error and fraud. The UK implemented a system in 2020 called Payee Confirmation, where the sender verifies that the name and account number are correct before confirming the payment. And SWIFT, which runs the system that supports many international wire transfers, earlier this year began offering pre-payment validation that checks the validity of a recipient’s account before money is transferred.

Canada could also improve the reliability of electronic funds transfer payments by joining the international bank account number system used by more than 80 countries, as Professor Antweiler recommends. The system provides more standardization to reduce errors and has check digits that are used to run an algorithm to detect common errors, he explained.

Such a change would require buy-in from all banks, and bugs still happen in the system, said Payments Canada, which operates Canada’s wire transfer system on behalf of banks and credit unions.

Canadians sending an EFT should be vigilant and verify the account, branch and institution numbers required for a transfer. The numbers can be verified on a voided check, while the recipient can also call their financial institution to double check, which the sender could also do with the recipient.

But even the most advanced systems will have shortcomings. Citigroup learned this the hard way in 2020 when, instead of sending a small interest payment on Revlon’s debt, it transferred the entire $900 million debt. She is still struggling to get much of her back.

As for Mr. Nachaj, he says he plans to stick to the old paper checks and money orders the next time he needs to move money.

“I won’t telegraph unless I have to, simply because I don’t feel like I have a lot of confidence in that part of the system at the moment. »

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