New rules requiring banks to compensate people tricked into transferring money to a fraudster have been praised as a “major step forward”. Under the change, banks will have to pay compensation to victims of authorized instant payment (APP) fraud unless there is gross negligence on the part of the customer.
A repayment limit of £85,000 applies under the rules, but banks can choose to go further and repay higher amounts. The new protections apply when transfers are made to or from a UK bank account. It covers transactions made as of October 7 and is not applied retroactively.
Previously, many bank customers relied on a voluntary code to get their money back. Concerns have been raised that consumers are facing a refund “lottery”. An explosion of fraud in recent years has seen scams become increasingly sophisticated, with criminals posing as trusted institutions such as banks, companies or Government departments to persuade people to part with their cash.
The total number of APP cases rose 12% year on year to 232,429 last year, according to figures from UK Finance. Reported losses due to this type of fraud amounted to £459.7 million. Procurement scams accounted for nearly two-thirds (67%) of total APP cases in 2023.
With a procurement scam, someone pays in advance for goods or services that they never receive, often ordered online through an auction website or social media. According to UK Finance, three quarters (76%) of last year’s APP fraud cases originated from online sources.
The figures also show that 62% of APP fraud losses, or £287.3 million, were refunded to victims in 2023, up slightly from 59% in 2022. The new mandatory repayment limit was previously expected to be £415,000 under the changes, but the Scheme Regulator (PSR), which oversees the Payments Rules, confirmed in September that this would be reduced to £85,000.
The regulator said the decision to reduce the maximum limit was “carefully balanced” and that more than 99% of APP claims by volume will continue to be covered by the revised cap. But consumer group Which? He argued that victims of high-value scams such as investment scams and house transfers 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 apply to the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000. Which? It also warns people to be careful as scammers could use the changes to send fake information under the guise of banking.
Criminals often attack key events to make the scam seem more believable. Lloyds Bank previously estimated that more than £1 million may have been lost to fraudsters pretending to offer Taylor Swift concert tickets in the UK.
Rocio Concha, Which One? The Director of Policy and Advocacy called the new rules “a huge step forward.” He 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 will ensure that the vast majority of victims are compensated and treated fairly and consistently if they fall victim to this horrific crime.
“Which? The regulator has concerns about the decision to weaken the scheme at the eleventh hour by lowering the maximum repayment limit, reducing the incentive for banks and payments firms to take fraud seriously. The regulator is keen to closely monitor the protections individual payment providers have in place to stop fraud and to intervene and increase the threshold.” We expect it to be ready.”
Advances in technology and AI (artificial intelligence) have made fake communications, including videos and voice messages, harder to spot. AI also eliminates spelling mistakes and poor grammar, which are traditional characteristics of fraud. But artificial intelligence is also used to fight fraud. Nonprofit organization Get Safe Online announced the launch of a new AI-powered tool on Monday.
The Silver Ask tool allows smartphone users to upload a screenshot of suspicious texts, emails or websites and instantly checks the communication to indicate if it is a “red flag.” Alex Somervell, founder of Ask Silver, said: “In this digital age, where fraud is increasingly sophisticated and fraudsters are highly experienced, we must empower individuals with tools that increase their alertness and enable them to live, shop and buy without fear.”
Meanwhile, banks are calling for a cross-sector and cross-border fight against fraud. A recent report by think tank Social Market Foundation (SMF) in partnership with Santander UK highlighted the global nature of fraud.
Ben Donaldson, Director General of Economic Crime at UK Finance, said: “Fraud is a horrific crime that, in addition to financial loss, can cause serious psychological harm to victims. “This also allows organized crime groups to make profits, grow stronger and commit other crimes that harm society.”
He continued: “Reimbursement is important but does nothing to prevent or reduce psychological harm to victims, nor does it stop organized crime groups from stealing money. Our priority should be to prevent these crimes. The financial services industry does more than any other to protect the public from fraud. The vast majority of fraud originates from social media and telecommunications networks, and this is where most of the social engineering and psychological harm occurs.
“We need the online services and telecommunications industries to do more with financial services and law enforcement to protect the public.”
To crack down on fraud, last week the Government proposed new laws that would give banks an additional 72 hours to delay suspicious payments. This may occur where there are reasonable grounds to suspect that a payment is fraudulent.
Currently banks are required to process or reject a payment by the end of the next business day. Some concerns have been expressed that mandatory repayment may encourage some people to be “complicit” in fraud.
Asked by journalists about the unintended consequences of the new rules, Mr Donaldson said in May: “I think we are likely to see an increase in certain types of fraud. “I would be surprised if we don’t see criminals using this as an opportunity to engage in complicity.”
A person found to be complicit in a scam will not receive a refund and will also face the possibility of police action.