Fraudulent activities continue to plague UK consumers, with an alarming rise in authorised push payment (APP) scams in recent years. According to UK Finance, as many as 196,000 consumers fell victim to these scams in 2021, resulting in losses amounting to £583m. The Payment Systems Regulator (PSR) is currently exploring new rules that will require banks and building societies to fully reimburse victims of APP scams where the loss is over £100. However, MPs warn that the proposed plans may not address the issue and call for more decisive action.
The current system relies on a voluntary code signed by ten banks and other payment service providers (PSPs) in 2019. Despite the code, many victims still struggle to get their money back from the banks. The parliamentary Treasury select committee has repeatedly called for the code to be made mandatory to combat the growing harm caused by APP fraud.
Why Some Banks are Opposing the Mandatory Reimbursement Threshold
The Financial Services and Markets Bill, which is currently being debated in Parliament, aims to establish a mandatory reimbursement system for APP fraud over the Faster Payments system. However, MPs are questioning why victims who have lost under £100 would not be fully refunded. Considering that almost one in four APP scams involve amounts less than £100.
Some banks have suggested that levels should be set somewhere between £200 and £1,000, warning that mandatory reimbursement could lead to moral hazard. However, the PSR report found “very limited evidence” to support this claim. TSB, which introduced a fraud guarantee repayment scheme in 2019, stated that there was no indication of any “moral hazard” or rise in consumer negligence due to the initiative.
The PSR set the £100 threshold as the minimum for APP fraud, matching the minimum that was selected for credit card fraud. The regulator also stated that consumers who show “gross negligence” are usually not eligible for reimbursement. The Financial Ombudsman Service will work to define what constitutes gross negligence.
Keeping Up the Pressure: Addressing Delays in Fraud Victim Reimbursement
MPs are concerned that the proposed plans may cause further delays in scam victims receiving their money back. Harriett Baldwin, chair of the Treasury Committee, urged regulators to act swiftly to address all the exclusions and criteria involved in the reimbursement process. She also emphasised that fraud is increasing, and constituents are being victimised. Baldwin urged regulators to act swiftly to address exclusions and criteria to prevent further delays in implementing solutions. She vowed to maintain the pressure to ensure timely action.
Delays in refunding victims is a matter of great concern and is directly linked to the underreporting of cases. Refunding victims has become so drawn out and complicated that many victims do not bother to make a report. This not only leads to a lack of justice for the victims but also perpetuates the cycle of fraud.
Banks and other financial institutions must take steps to simplify and streamline the refund process for fraud victims. This will not only encourage more victims to report fraud but also send a strong message to fraudsters.
The Issue of Gross Negligence in Fraud Prevention and Reimbursement
The ombudsman has responded by introducing a new banking team to speed up the resolution time for complaints. It reported that the average waiting time dropped from just under seven months in 2021-22 to around three months.
As APP scams continue to evolve, it is important to strengthen fraud prevention measures to protect UK consumers. By implementing mandatory reimbursement for APP fraud victims, we can ensure that victims are adequately compensated for their losses. It is also crucial to establish more transparent criteria for refunds and improve the efficiency of the reimbursement process. By taking these steps, regulators and financial institutions can work together to combat fraud.
