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Victims of authorised push payment (APP) fraud will be able to claim a maximum £415,000 from banks and other payment service providers from October 2024.
This means most of the money lost by scam victims will be returned, according to the Payment Systems Regulator (PSR), which announced the measure this week.
Instances of APP fraud can include online investment scams and purchase rackets as well as victims being hoodwinked into sending money to fraudsters posing as friends, family or a company.
Payment service providers may include banks, building societies, e-money issuers, remittance services and credit card issuers.
The PSR has been consulting with the financial services industry since September 2022 to create a mechanism to deal with rising levels of fraud. According to trade body UK Finance, APP fraud rose by 22 per cent in the first half of 2023 compared with the same period the previous year.
Under the status quo, 10 payment service providers — covering 90 per cent of relevant transactions — voluntarily reimburse APP scam victims.
“The action we’re taking significantly increases the level of protection for people and puts the UK at the forefront of APP fraud protections globally,” said Chris Hemsley, PSR managing director. “Payment firms are already getting ready by improving fraud controls and more people are getting their money back. We now expect the momentum to implement the full protections to increase.”
While the 36 stakeholders consulted agreed the maximum level of reimbursement should apply to all consumers, including vulnerable ones, there was general disagreement with the maximum level being set at £415,000, especially from smaller payment system providers.
Payment service providers argued that it risked making businesses unviable and could lead some providers to leave the market. Consumer groups said that it would not be enough to make up for life-changing losses.
Payment firms can apply an excess of £100, except in cases where consumers are deemed vulnerable. Older consumers are more likely to be victims of APP scams.
The PSR says a bank may consider whether a consumer had not been reasonably careful and “grossly negligent” when it was deciding whether to provide compensation. Consumers should heed warning messages from their payment service providers, promptly notify them of suspected fraud, share information to help them assess claims and consent to fraud details being shared by the police.
However experts say that payment service providers are not likely to resist compensating consumers. Challenging a victim’s claim requires going through an arduous process with the Financial Ombudsman Service (FOS).
According to Kathryn Westmore, senior research fellow for financial crime at the Royal United Services Institute, providers have to consider the time and resources it would take to investigate a case, draw up legal documents, draft responses and present its conclusions.
“My personal view is that for the majority of fraud cases [banks] won’t contest, because the cost of potentially going to the FOS, particularly for small amounts like £1,000 or so, is just not worth it,” said Westmore.
