Bank transfers, which have become everyday tools for individuals and businesses, are based on precise legal mechanisms. However, sometimes a transfer is not carried out correctly or is delayed, raising questions about the applicable deadlines and the liability of banking institutions. Understanding these rules is essential if you are to protect your interests and know how to react in the event of an anomaly. Our firm can help you understand the principles governing the non-execution or delay of transfers, and the remedies available.
Notion of irrevocability and enforceability
The transfer order is distinct from the transfer transaction itself. The order is the instruction given by the payer to his payment service provider. The transfer transaction corresponds to the execution of this order, a scriptural process for transferring funds. This distinction is fundamental, particularly for determining when the order becomes irrevocable and its effects on third parties.
Historically, case law held that the originator could revoke his mandate as long as his account had not been debited. However, the European directives on payment services (DSP 1 and DSP 2), transposed into French law, have changed this principle. From now on, revocation of the order is subject to restrictions and is only possible up to the irrevocability date set by article L. 133-8 of the French Monetary and Financial Code. This date generally corresponds to receipt of the order by the payer's payment service provider.
This irrevocability of the order, once acquired, means that even the death or incapacity of the payer or the opening of insolvency proceedings against him or her will no longer affect the execution of the transfer. The funds are then considered to have left the payer's assets, which has important consequences for their enforceability against third parties. It is important to note that if the order has become irrevocable, the payer can no longer block its execution, although he may still use the funds in his account until they have been debited, without risking the penalties applicable to bounced cheques.
Cass. Com. 30 June 2021, no. 20-18.759
A ruling by the Court of Cassation on 30 June 2021 (no. 20-18.759) clarified the enforceability of a payment order in the event of insolvency proceedings. The Court ruled that a payment order given by a company on the eve of its compulsory liquidation is enforceable against the bank, even if the funds were received by the beneficiary after the commencement of the proceedings. This decision reinforces the concept of the irrevocability of the order, which freezes the legal situation at the time it is issued, subject to the specific rules of insolvency proceedings. For a broader understanding, the legal framework for bank transfers deserves to be explored.
Liability for non-performance or delay
The payment service provider, usually a bank, is under an obligation to execute transfer orders diligently. As an agent for payment, it may be held liable in the event of non-execution, poor execution or delay in execution of a transfer. This liability is contractual in nature and is subject to a specific regime defined by the French Monetary and Financial Code, in application of European directives.
The law requires service providers to execute transfers in accordance with the order given. This means that the full amount of the transfer must be credited to the beneficiary's account, without deduction of any unforeseen bank charges. Any fault in execution, such as double execution of the same order, may render the service provider liable.
In the event of an unauthorised or incorrectly executed payment transaction, the liability regime is exclusive and is defined by articles L. 133-18 to L. 133-24 of the French Monetary and Financial Code. These provisions transpose Articles 58, 59 and 60(1) of Directive 2007/64/EC (PSD 1). This means that no other liability regime resulting from national law, such as contractual liability under ordinary law, can be applied. In the event of non-execution or improper execution, the payer's payment service provider must reimburse the payer for the amount of the unauthorised transaction, unless the payer is liable under the conditions laid down by law. Questions of the bank's liability in the event of a fraudulent transfer are particularly relevant in this context.
Art. L. 133-10 CMF (reasoned refusal)
Article L. 133-10 of the French Monetary and Financial Code states that the payment service provider may refuse to execute a payment order, but this decision must be justified. This refusal cannot be discretionary; it must be justified by a defect that prevents the order from being executed, such as a lack of funds, inaccuracy in the order (amount, beneficiary, identifiers) or problems with security procedures. If all the conditions set out in the framework contract are met by the originator, the service provider may not refuse to execute the order.
In the event of a dispute, the payer has thirteen months in which to report an unauthorised or incorrectly executed transaction to his service provider. After this period, the right to reimbursement may be lost, unless the bank is guilty of serious misconduct. If the service provider is unable to prove that the account holder disclosed his identification details intentionally, through recklessness or gross negligence, it will be ordered to reimburse the fraudulent debits.
Turnaround times and compensation
European directives have considerably reduced the time taken to execute credit transfers. Under article L. 133-12 of the French Monetary and Financial Code, a credit transfer must be credited to the account of the beneficiary's payment service provider by the end of the first business day following receipt of the order. This deadline may be extended by a further working day if the order is given on paper. There are now even instant transfers, executed in a matter of seconds.
The principle of value dates, which allowed banks to shift the date on which funds were available, has also been abolished by the transposition of the PSDs. The value date of the debit to the payer's account cannot be earlier than the day on which the amount is actually debited. Similarly, the payee's service provider must make the funds available to the payee immediately after they have been credited to the service provider's account, and the value date of the credit may not be later than this. These requirements are mandatory and are intended to ensure that the funds are available quickly.
In the event of improper execution of the transaction, the costs and interest generated shall be borne by the service provider responsible. No costs may be charged to the customer for information provided or for corrections made to transactions, except in specific cases of abnormal behaviour by the payer.
Insolvency proceedings: impact on transfers
Complex issues arise if one of the participants in the credit transfer transaction is involved in collective proceedings (safeguard, receivership or compulsory liquidation). If the payer is involved, the validity of the transfer in relation to the proceedings depends on the date on which the order becomes irrevocable in relation to the judgment opening the proceedings.
If the order becomes irrevocable after the opening of the insolvency proceedings, the funds remain at the disposal of the insolvency proceedings and the transfer is paralysed. On the other hand, if the order is irrevocable prior to the judgment, the beneficiary's right is acquired, and the transfer should be settled despite the opening of the proceedings. The question of whether the payment can be challenged during the suspect period remains a separate issue and depends on the relationship between the originator and the beneficiary.
If the beneficiary is in receivership, he can still receive the transfer. The law does not provide for lawful opposition to the execution of the order on this ground alone. However, receipt of the funds in the beneficiary's bank account may have an impact on the provisional balance. If this balance is in debit, the transfer cannot be credited to the account after the proceedings have been opened to offset the existing debit balance. The steps involved instopping or disputing a bank transfer may be necessary.
Finally, if one of the banks involved in the transaction is in receivership, the specific rules of the interbank settlement systems apply. Payments made under this system cannot be cancelled as a result of the opening of insolvency proceedings against one of the participating bankers, as long as they were made before the expiry of the day on which the opening judgment is handed down. Our firm, banking and finance lawyerhas the expertise to support you in these situations. What's more, the due diligence requirements for international transfers are an aspect not to be overlooked.
The law on credit transfers is complex and constantly evolving, particularly under the impetus of European directives aimed at making transactions more secure and fluid. If you are faced with a transfer that has not been executed or has been delayed, or in the event of a dispute, the assistance of a lawyer is invaluable in asserting your rights.
For an in-depth analysis of your situation and tailored advice, contact our team of lawyers.
Sources
- Monetary and Financial Code
- Civil Code
- Commercial code
- Code of Criminal Procedure
- Directive 2007/64/EC of 13 November 2007 (PSD 1)
- Directive 2015/2366/EU of 25 November 2015 (PSD 2)
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