Have you ever been a victim of fraud?
If you have, then you’re not alone, because research shows that 21% of the
British population were victims of fraud between 2021 and 2023 (Source: Social
Market Foundation).
I was myself the victim of a major credit card fraud a few years ago when somebody phoned my bank, and got them to agree to increase my credit card limit from £1,000 to £10,000.
Then literally a few minutes later, the fraudsters withdrew £10,000 from my credit card!!
To this day, I don’t know how they managed to do this, and I also don’t know why on earth the bank agreed to increase the credit limit, just based on an incoming phone call.
Why didn’t they write to my home address to check whether this was genuine? Why didn’t they take any other precautionary measures? I suppose I will never know the answer, but the main thing is that the bank obviously realised this was fraud, as they refunded all the money to me without hesitation.
So I was very interested to learn last week that, under new rules, UK banks must refund fraud victims up to £85,000 within five days.
Most High Street banks and payment companies voluntarily compensate customers who are tricked into sending money to scammers. But in a world first, these refunds will become mandatory from October 2024. The new rules have just been announced by the Payment Systems Regulator (PSR).
The PSR also announced that once a bank or payment company has refunded a customer, it could claim half back from the financial institution which the fraudster used to receive the stolen money.
Authorised Push Payment Fraud
When criminals dupe their victims into sending them money by pretending to be a legitimate company, such as their bank or a tradesperson or by selling goods that don’t exist, this is known as ‘authorised push payment fraud’ (APP). The number of cases of APP rose by 12% to 232,429 in 2023, with losses totalling £459.7m, according to UK Finance.
In 2023, there were 18 instances of people being scammed for more than £415,000, and 411 instances where they lost more than £85,000.
What do the experts say?
David Geale, managing director of PSR said the new rules would mean all victims of this type of fraud would now get the same level of help. According to him: “Whether you get reimbursed and how much can actually depend on who you bank with and that can’t be right. We want to have a consistent experience.”
He said claiming half the compensation back from the bank the fraudster used would be a “game-changer” because it would incentivise the industry to shut down accounts sooner to prevent fraud and therefore payouts.
But not everyone is happy. The maximum refund was slashed after objections from the financial industry that it could cause problems for smaller firms. The watchdog therefore reduced the maximum compensation from a proposal of £415,000 down to £85,000. It claims that the new cap of £85,000 will cover more than 99% of claims.
The consumer organisation Which? warned there could be “disastrous consequences” as a result of lowering the cap and called on the regulator to monitor any impact. Rocio Concha, Which? director of policy and advocacy, said that lowering the proposed reimbursement would reduce the incentives for banks and payments firms to take fraud prevention seriously. According to Concha: “The regulator has shamefully side-lined scam victims, despite the evidence showing that this decision could have a negative financial and psychological impact on them.”
How does the system work?
1. The Financial Conduct Authority
regulates financial services in the UK
2. Customers can complain about any
regulated firm to the Financial Ombudsman Service, which can settle disputes
and order firms to pay compensation
3. Most High Street banks have signed up
to the Contingent Reimbursement Model code designed to protect customers from
authorised push payment (APP) scams
4. The CRM will be superseded by the
Mandatory Reimbursement Requirement from 7 October 2024
5. Unlike the CRM, which is a voluntary
code, the new regulations are obligatory
6. They will cover the vast majority of
UK money transfers up to £85,000, with the exception of international transfers
or those involving cryptocurrencies
7. Refunds will be split 50 – 50 between
sending and receiving firms
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