Itaú Made R$1 Million Duplicate Transfers Using PIX, Sues Banks to Recover Funds

RIO DE JANEIRO, BRAZIL – A dispute among Brazil’s largest banks could be the first judicial “trial by fire” of PIX, the Central Bank’s (BC) new instant payment system.

Case documents, released by the Cointelegraph website, show that in November 2020, shortly after the payment system was launched, Itaú Bank had a severe flaw in its integration with the Central Bank system and made duplicate transfers to accounts in several banks.

Among the financial institutions sued by Itaú and which, according to the bank, received the undue amounts, are Banco do Brasil, Bradesco, Sicred, Bancoob, Nubank, Original and Inter Banks.

“Due to a system error, undue transfers were made, to the bank accounts of recipient banks. This type of systemic failure occurs somewhat frequently within financial institutions,” highlights Itaú in the suit.

According to the lawsuit brought by Itaú, the transfers were duplicate payments, totaling R$966,392 (around US$185.000).

Itaú claims that, although the flaw was exclusively from its own system, the other banks were “aware of the system failure” and did not charge back the duplicate payments, instead allowing their customers to use the amount improperly transferred.

“The Defendants, although aware of the system failure when the amount was still under their control, rather than returning the undue amount to the Plaintiff, allowed the settlement of credits into the accounts of recipient account holders, thereby blocking its return and causing unjustified enrichment with respect to amounts the restitution of which is now being sought,” says Itaú (Plaintaiff) in the lawsuit.

Itaú gets in touch with clients

According to the Itaú court filing, as soon as it realized the flaw, the bank immediately made contact with some depositors so that they could immediately contact the transfer recipients and arrange for a chargeback.

“So much so that some amounts were retrieved. In parallel, the Plaintiff sent e-mails to the Defendants (other banks), reporting what had occurred, specifying the amounts and requesting immediate chargeback. (…) The operational issue could have been resolved had the Defendants not been negligent, despite being aware of the system error,” claims Itaú.

However, since some banks and account holders failed to repay the incorrect tramsfers, Itaú requests that the banks be ordered to block those accounts and, subsequently, return to Itaú the excess amounts received by the account holders.

Furthermore, as a subsequent request, in situations where chargeback is not possible (due to insufficient funds in the beneficiary’s account), Itaú requests that financial institutions provide all details on the clients involved so that the bank may file judicial proceedings against them.

“(…) It is requested that the Defendants be ordered to provide the name, address, amount which was not possible to recover and individual taxpayer ID (CPF) of the clients whose chargebacks were not effected, so that the Plaintiff may exercise its legitimate right to file a lawsuit against them, to retrieve the amounts which effectively belong to it, under the penalty of unjustified enrichment of the recipients,” it demands.

Who can reverse PIX transactions?

Initially, the Courts accepted Itaú’s allegations and ordered the blocking of the amounts in the mentioned banks’ accounts. However, Banco do Brasil (BB) filed an appeal with the São Paulo Court of Appeals (TJ-SP) to reverse the decision and the appeal was granted.

“This is an appeal against a decision that granted injunctive relief to the plaintiffs to block, within 48 hours, amounts credited in duplicate and to chargeback amounts available in their clients’ accounts. An injunction is granted to suspend the enforcement of the decision, in view of the fact that the amounts were credited in duplicate due to a system error by the Bank – credited to the accounts of the beneficiaries through instant transfers (PIX), and are within the scope of the depositor’s assets”, highlights the ruling on the appeal filed by Banco do Brasil (BB).

According to BB, Itaú’s request for financial institutions to automatically block clients’ accounts is illegal, since it cannot be initiated between institutions, but only by the client.

“(…) Chapter XI of Resolution BCB No. 1 of 08/12/2020, which covers “transaction chargeback”, provides in its article 40, §1, that “A PIX chargeback must be initiated by the recipient user,” so there is no legal provision for the chargeback to be made by the Financial Institution in which the account is held,” argued BB.

In fact, according to the Central Bank Normative Instruction on the PIX operation, the return of amounts between financial institutions, in the case of PIX, may be performed, but based only on the client’s order:

“Art. 40. The resources of a certain transaction carried out the funds of which are already available in the transactional account of the recipient user may be returned, in whole or in part. A PIX return must be started by the recipient user.”

Although the Central Bank’s resolution states that the client must request a chargeback of the transaction, in September 2020 the deputy head of the Central Bank’s Competition and Financial Market Structure Department, Carlos Eduardo Brandt, disclosed that the Central Bank, which controls the system, may also amend the PIX transactions.

Thus, according to him, if a transaction is confirmed and, after confirmation, the Central Bank understands that fraud has occurred, it could reverse the transaction without asking the recipient: “If there is evidence of fraud, it will be possible to chargeback without the authorization of the person who received the deposit,” he said at the time.

The case is still being analyzed by the courts and there is no final decision on the case. However, the filing of the lawsuit by Itaú, as well as the defendant bank’s replies, in the case of Banco do Brasil, may lead the Central Bank to review the PIX rules with respect to security and fraud in transactions.

Itaú’s position

In a note sent to the EXAME on Wednesday morning, January 20th, Itaú commented on the matter, explaining that the clients whose transfers had errors have not been affected and stating that the lodging of lawsuits is a standard measure.

“Itaú Unibanco will not comment on lawsuits that are under judicial seal. However, the bank clarifies that customers with double debits due to a one-off operational flaw were immediately reimbursed. The bank also points out that judicial proceedings are a common measure among institutions in this type of situation, because it provides legal security for them to chargeback unduly credited accounts.”