Bank fraud reimbursement limit set to be slashed by thousands under new plans (Image: Getty)
The maximum reimbursement banks must provide to customers who are scammed into transferring money to fraudsters is set to be significantly reduced under new plans. From October 7, mandatory rules will come into effect, obliging banks to refund victims of bank transfer scams unless the customer has shown gross negligence.
Previously, the maximum reimbursement value was set at a whopping £415,000 under these plans. However, on Wednesday, the Payment Systems Regulator (PSR) launched a consultation into a significantly lower cap, set at just £85,000.
Consumer group Which? has labelled the move as “outrageous”, warning it could leave some individuals exposed to “devastating financial and emotional harm”.
Rocio Concha, Which? director of policy and advocacy, said: “Victims of high-value fraud, such as investment scams and house purchases, stand to have their lives destroyed by this screeching U-turn.”
She added: “Yet somehow the regulator’s conclusion is that these people should be abandoned to provide a small benefit for parts of the finance industry that have been warned over their role in facilitating financial crime.”
Critics say the move will expose people to “devastating financial and emotional harm”. (Image: Getty)
Ms Concha accused the PSR of having “caved into pressure” and “dropped the crucial principle that a higher reimbursement limit gives the finance industry strong incentives to invest in improved fraud security measures, which could have disastrous consequences for victims.”
She said: “The regulator must stick to its original plan for a £415,000 limit to protect victims of high-value scams. If this Government is serious about fighting fraud, it must support the implementation of the new reimbursement scheme in full.”
The PSR explained that the proposed £85,000 cap aligns with the Financial Services Compensation Scheme (FSCS) limit, which they claim is “well understood” by customers.
The authority also pointed out that after reviewing around 250,000 cases within 2023, only 18 resulted in losses exceeding £415,000 while 411 reported losses over £85,000.
Their review indicated that “almost all” major scams involve multiple smaller transactions, raising doubts about the effectiveness of transaction limits in preventing large-scale fraud.
Furthermore, the PSR highlighted extra evidence considered from industry figures and the Financial Conduct Authority (FCA) regarding the proposed cap on refund liabilities.
The regulatory body reassured that with the new cap, more than 99 percent of scam claims would still be covered, based on the volume of cases.
David Geale, PSR managing director, commented: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach. As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance.”
“Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections, and we maintain effective market competition and innovation.”
Pay. UK, the operator of Faster Payments, the payment system through which most APP fraud occurs and to which these protections apply, has confirmed its readiness for October 7, according to the regulator.
The consultation period is set to close on September 18. The PSR plans to confirm its final approach before the end of September.
At present, many banks are part of a voluntary reimbursement code, but there have been concerns that customers face a “lottery” when it comes to getting their money back.
This week, the Financial Ombudsman Service (FOS) reported that complaints related to scams have hit their highest level since at least early 2018.
In the first quarter of this financial year (April 1 to June 30), consumers lodged 8,734 complaints about fraud and scams, as per the FOS.
More than half of these were related to customer-approved online bank transfers, also known as authorised push payment (APP) scams.
A spokesperson for Pay. UK stated: “We will continue to work with the PSR and industry to comply with any changes following the PSR’s announced consultation and its outcome.”
Anna Roughley, head of insight at the Lending Standards Board (LSB), stressed the robustness of the existing voluntary code’s consumer protections against APP fraud, which currently carries no limit on reimbursement.
She said: “Importantly, the code also contains specific provisions on APP fraud prevention and detection, which stop consumers from being harmed, stop money from reaching criminals, and stop firms from having to face the cost of reimbursement. The PSR’s new framework will be bringing many new payment service providers into the scope of a reimbursement scheme for the first time.”
Ms Roughley added: “As the sector adapts to the new framework, we would urge all payment service providers to look to the lessons of the (current voluntary) code and the emphasis it put on prevention and detection.”
