We refund all overpayments on payoffs. In a situation where the payoff is made by a third party (such as another institution that refinanced) should the refund go to the consumer or the third party? Reg Z leads me to believe the consumer.

Customer always.

Thanks. That is what I expected. Then it would be on the third party to get their money back from the customer, not from us.

If the customer borrowed the money to pay off the loan, then why would the other financial instruction be entitled to any overpayment back - unless you are talking about a huge mistake rather than a overpayment that was only due to a per diem issue or another payment of the customer's posted since the other bank received the payoff statement?

In the current scenario we're dealing with, it was a large mistake. The third party sent the payoff twice, and both were credited to the account.

Does this change your opinion? Isn't the customer still entitled to the balance per regulation Z?

How can you payoff a loan twice? You are suggesting that the bank not work with the settlement agent?? The borrower is not entitled to receive such an error - it would be called unjust enrichment and getting the bank embroiled in the coming battle is foolish. I think common sense sort of comes in here somewhere? Does it not?

How could a second payoff be credited to an account that was already PIF?
The party out the money is the third party that issued the second payoff in error.
You should have returned it rather than apply it again.

There was no settlement agent. This was a personal loan, secured by personal property. The customer traded in the property, and the third party paid us off. They issued a check, but before the check cleared also sent an ACH. They both ended up clearing at similar times.

I'm not sure if common sense should apply or not, hence why I asked for assistance. From my compliance experience, common sense does not typically prevail over explicit regulations in the eyes of examiners.

What regulations are you referring too? This is not a deposit account, it is a loan. If the ACH or check paid off the loan - why in the world would you not have just returned the check or ACH? No one noticed this when processing the pay-off? Even if they posted the same day, someone had to notice this the next day and one entry should have been reversed and returned.

Reg Z, credit balances 1026.21. I agree, it should have been caught, and I'm looking to determine how it wasn't. But, it wasn't. It was applied and created a balance on the consumer account. Then, our refund process kicked in and the balance was refunded to the consumer as described in the regulation.

So you are saying it is too late, I thought you were asking about what should happen. Well at this point, I would wait for the third party's lawyers to contact you and if that doesn't happen, then sleep tight at night until then.

The third party contacted us (not their lawyer). Thought I'd see if we had an obligation to refund the third party, or if it was up to them to get the money from the customer. To me, that answer hinged on whether or not we should have paid the refund to the customer. But perhaps it hinges on whether we apply the funds to the account in the first place. Will leave it in legal's hands.