by New rules requiring banks to refund people who have been tricked into transferring money to a fraudster have been adopted as a “major step forward”. Under the reform, banks must refund fraud victims an authorized payment pressure (APP), unless the customer was grossly negligent.
A repayment limit of £85,000 has been applied under the rules, although banks can choose to go beyond that and repay higher amounts. The new protections apply when transferring to and from a UK bank account. They cover transactions made from 7 October onwards and do not apply retrospectively.
Previously, many bank customers relied on a voluntary code to get their money back. Concerns were raised that consumers faced a refund “lottery”. Due to an explosion of fraud in recent years criminals are pretending to be reliable institutions such as banks, companies or Government departments to lure people into parting with their money, and scams are becoming more sophisticated.
According to figures from UK Finance, the total number of APP cases increased by 12% year-on-year last year to 232,429. The total reported losses for this type of scam was £459.7 million. Purchase scams accounted for around two-thirds (67%) of the total number of APP cases in 2023.
With a purchase scam, a person pays in advance for goods or services that are never received, often ordered online, such as through an auction website or social media. Three quarters (76%) of APP fraud cases last year came from online sources, according to UK Finance.
Its figures also show that 62% or £287.3 million of APP fraud losses were returned to victims in 2023, up slightly from 59% in 2022. The new mandatory refund 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 reduce the cap was “carefully balanced” and that more than 99% of APP claims by volume will still be covered by the revised cap. But a group of consumers Which? argued that victims of high-value fraud, such as investment scams and house conveyancing, could face a long 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 lodge a claim with the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000. Which one? also warning people to be vigilant – as fraudsters could use the changes to send out false information under the guise of banks.
Criminals often go back to significant events to make fraud more believable. Lloyds Bank previously estimated that more than £1 million could be lost in the UK to fraudsters pretending to offer Taylor Swift concert tickets.
Rocio Concha, Which? 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 repayment lottery depending on who they bank with. From today, this new scheme should ensure that the vast majority of victims are repaid and treated in a fair and consistent manner if they suffer this horrific crime.
“Although he is concerned about the regulator’s decision to weaken the scheme at the eleventh hour by reducing the repayment ceiling, which reduces the incentive for banks and payment firms to take fraud seriously. We expect the regulator to closely monitor the safeguards put in place by individual payment providers to stop scams and be willing to intervene and increase the threshold.”
Advances in technology and AI (artificial intelligence) have made fake communications, including video and voicemails, more difficult. AI also eliminates spelling mistakes and bad grammar – the traditional hallmarks of scams. But AI is also being used to fight scams. The non-profit organization Get Safe Online announced the launch of a new tool on Monday, powered by AI.
The Ask Silver tool enables smartphone users to upload a screenshot of suspicious texts, emails or websites and it will immediately check the communication and flag it as a “red flag”. Alex Somervell, founder of Ask Silver, said: “In this digital age where scams are becoming more sophisticated and fraudsters are more experienced, we need to empower people with tools that increase their vigilance and allow them to live, shop make and buy without fear.”
Meanwhile, banks are calling for a cross-border and cross-border fight back against fraud. A recent report by the Social Market Foundation (SMF) think tank in partnership with Santander UK highlighted the global nature of fraud.
Ben Donaldson, UK Financial Management’s director of economic crime, said: “Fraud is a horrific crime that can cause significant psychological harm to victims as well as financial loss. It enables organized crime groups to profit, grow stronger and commit other crimes that harm society.”
He continued: “Refund is important, but it does nothing to prevent or reduce psychological harm to victims, and it does nothing to prevent organized crime groups from stealing money. Our priority is to prevent these crimes in the first place. The financial services sector does 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 of the social engineering and psychological harm occurs.
“We need the online services and telecommunications sectors to do more with financial services and law enforcement to protect the public.”
Taking further measures to crack down on fraud, the Government last week proposed new laws to allow banks an extra 72 hours to delay suspicious payments. This may occur in cases where there are reasonable grounds to suspect that it is a fraudulent payment.
Currently, banks must process or reject a payment by the end of the next business day. Some concerns were raised that a mandatory refund could entice some people to commit “combined” fraud.
Asked by journalists about any unintended consequences of the new rules, Mr Donaldson said in May: “I think there is a good chance we will see an increase in certain types of fraud. I would be surprised if we don’t see criminals taking advantage of this as an opportunity to commit fraud appropriately.”
A person found to be involved in fraud will not receive restitution, and will not face the prospect of police action.
