New rules requiring banks to refund people tricked into transferring money to a fraudster have been hailed as “a major step forward”. Under the shake-up, banks must reimburse authorized victims of push payment fraud (APP) unless the customer was grossly negligent.
Under the rules, a refund limit of £85,000 has been applied, although banks can choose to go further and refund higher amounts. The new protection applies when a transfer is made to and from a UK bank account. They relate to transactions made from October 7 onwards and do not apply retroactively.
Previously, many bank customers relied on a voluntary code to get their money back. Concerns were raised that consumers were facing a “lottery” for reimbursement. An explosion of fraud in recent years has seen criminals pose as trusted institutions such as banks, companies or government departments to convince people to part with their money, with scams becoming increasingly sophisticated.
According to figures from UK Finance, the total number of APP cases increased by 12% annually last year to 232,429. Reported losses from these types of scams totaled £459.7 million. Purchase fraud accounted for approximately two-thirds (67%) of the total number of APP cases in 2023.
In purchasing fraud, someone pays in advance for goods or services that are never received, often ordered online such as via an auction website or social media. According to UK Finance, three-quarters (76%) of APP fraud cases last year came from online sources.
The figures also show that 62% or £287.3 million of APP fraud losses were returned to victims in 2023, just up from 59% in 2022. The new mandatory compensation limit was previously expected to be £415,000 under the changes, but the Payment Systems Regulator (PSR), which oversees the rules, confirmed in September that this would be reduced to £85,000.
The regulator said its decision to lower the maximum limit was “carefully considered” and that more than 99% of APP claims by volume will still be covered by the revised limit. But consumer group Which? argued that victims of high-value fraud, such as investment fraud and home conveyancing, could face a lengthy battle for repayment.
Some banks may decide to refund more than £85,000 on a case-by-case basis. If more than £85,000 is lost and not repaid, people can make a claim with the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000. Which one? also warns people to be vigilant as fraudsters could use the changes to send false information under the guise of banks.
Criminals often piggyback on important events to make fraud seem more likely. Lloyds Bank has previously estimated that more than £1 million may have been lost in Britain to fraudsters pretending to offer Taylor Swift concert tickets.
Rocio Concha, which one? director of policy and advocacy, described the new rules as a “major step forward”. She said: “For too long, victims have been at the mercy of a refund lottery depending on who they bank with. From today, this new scheme should ensure that the vast majority of victims receive fair and consistent compensation and treatment when they fall victim to this terrible crime.
“Which? is concerned about the regulator’s decision to weaken the scheme at the last minute by lowering the maximum reimbursement limit, reducing the incentive for banks and payment companies to take fraud seriously. We expect the regulator to monitor closely on the protection measures that individual payment providers have introduced to stop scams and is prepared to intervene and raise the threshold.”
Advances in technology and AI (artificial intelligence) are making fake communications, including videos and voicemails, harder to spot. AI also removes spelling mistakes and bad grammar – the traditional hallmarks of scams. But AI is also used to combat fraud. Nonprofit organization Get Safe Online announced Monday the launch of a new tool powered by AI.
The Ask Silver tool allows smartphone users to upload a screenshot of suspicious texts, emails or websites and the communication is immediately monitored and indicated if there is a “red flag”. Alex Somervell, founder of Ask Silver said: “In this digital age where scams are becoming increasingly sophisticated and scammers are highly skilled, we need to provide individuals with tools that increase their vigilance and allow them to live, shop and buy without fear.”
In the meantime, banks are calling for a cross-sectoral fight against fraud. A recent report from think tank the Social Market Foundation (SMF) in partnership with Santander UK highlighted the global nature of fraud.
Ben Donaldson, UK economic crime director, said: “Fraud is a terrible crime that, in addition to the financial loss, can cause serious psychological damage to victims. It also allows organized crime groups to make profits, grow stronger and commit other crimes that harm society.”
He continued: “Compensation is important, but it does nothing to prevent or reduce the psychological harm to victims, nor does it stop organized crime groups from stealing money. Our priority must be to prevent these crimes in the first place. The financial sector does far more than any other sector to protect the public from fraud. The vast majority of fraud originates on social media and through telecommunications networks, and this is where most social engineering and psychological damage occurs.
“We need the online services and telecommunications industries to do even more with financial services and law enforcement to protect the public.”
In further steps to tackle fraud, the government last week proposed new laws that would give banks a further 72 hours to delay suspicious payments. This may happen in cases where there are reasonable grounds to suspect that a payment is fraudulent.
Currently, banks must process or reject a payment before the end of the next business day. Some concerns have been raised that mandatory repayment could lure some people into “complicit” fraud.
Asked by journalists about any unintended consequences of the new rules, Mr Donaldson said in May: “I think there is a good chance that we will see an increase in certain types of fraud. I would be surprised if we don’t see criminals using this as an opportunity to commit complicit fraud.”
Anyone found complicit in fraud will not receive any restitution and may face police action.