Banks must reimburse bank transfer fraud victims in new refund rules

New rules introduced on Monday will mean banks will be required to reimburse people who have been tricked into transferring their money to a fraudster.

According to the new rules, banks must refund authorised push payment (APP) fraud victims up to a limit of £85,000, unless the customer has been grossly negligent.

Previously, bank customers faced a refund “lottery” where they relied on a voluntary code.

Rocio Concha, Which? director of policy and advocacy, described the new rules as a “major step forward”.

She said: “For too long, victims have been at the mercy of a reimbursement lottery depending on who they bank with.

“From today, this new scheme should ensure the vast majority of victims are reimbursed and treated in a fair and consistent way if they fall victim to this terrible crime.”

How are often are people being scammed?

Fraud cases have seen an explosion in recent years with criminals posing as official bodies such as banks, companies, and Government departments to persuade people to part with their cash, with scams becoming increasingly more sophisticated.

According to figures from UK Finance, the total number of APP cases jumped by 12% annually last year to 232,429., with reported losses totalling £459.7m.

Purchase scams accounted for around two-thirds (67%) of the total number of APP cases in 2023.

With a purchase scam, someone pays in advance for goods or services that are never received, often ordered online such as through an auction website or social media.

Three-quarters (76%) of APP fraud cases last year originated from online sources, according to UK Finance.

Its figures also show 62% or £287.3m-worth of APP fraud losses was returned to victims in 2023, slightly up from 59% in 2022.

What are fraud victims entitled to?

The new rules come into force on October 7 and cover transactions made to and from a UK bank account but do not apply to transfers made before this date.

The current limit is £85,000 but some banks may decide to reimburse more than £85,000 on a case-by-case basis.

If more than £85,000 is lost and not reimbursed, people can lodge a claim with the Financial Ombudsman Service (FOS), which has a compensation limit of £430,000.

The new mandatory reimbursement limit was previously expected to be £415,000 under the changes, but the Payment Systems Regulator (PSR), which is overseeing the rules, confirmed in September that this would be reduced to £85,000.

The regulator said its decision to reduce the maximum limit was “carefully balanced” and more than 99% of APP claims by volume will still be covered by the revised cap.

Ms Concha added: “Which? has concerns about the regulator’s decision to weaken the scheme at the eleventh hour by slashing the maximum reimbursement limit, which reduces the incentive for banks and payment firms to take fraud seriously.

“We expect the regulator to closely monitor the protections that individual payment providers put in place to stop scams and be prepared to intervene and increase the threshold.”

How can customers keep their money safe?

Which? is warning people to be vigilant as criminals often piggyback onto significant events to make frauds appear more plausible.

Lloyds Bank had previously estimated that more than £1m could have been lost in the UK to fraudsters pretending to offer Taylor Swift concert tickets.

Fears that AI (Artificial Intelligence) and new technology could make fake communications harder to spot, like emails, phone calls and voicemails, but AI is also being used to combat scams.

Not-for-profit organisation Get Safe Online announced the launch of a new tool on Monday, powered by AI.

The Ask Silver tool enables smartphone users to upload a screenshot of suspect texts, emails or websites and it will instantly check on the communication and indicate whether it is a “red flag”.

Alex Somervell, founder of Ask Silver said: “In this digital age where scams are increasingly sophisticated and scammers are highly experienced, we must empower individuals with tools that enhance their vigilance and allow them to live, shop and buy without fear.”

What are the banks doing to tackle this type of fraud?

Banks have been calling for a cross-sector and cross-border fightback against fraud.

Ben Donaldson, UK Finance managing director of economic crime said: “Our priority must be preventing these crimes in the first place.

“The financial services sector does far more than any other to protect the public from fraud. The vast majority of fraud originates on social media and via telecommunications networks, and this is where most of the social engineering and psychological harm takes place.

“We need the online services and telecommunications sectors to do even more with financial services and law enforcement to protect the public.”

In further moves to crack down on fraud, last week the Government proposed new laws to allow banks an additional 72 hours to delay suspect payments.

This could happen in cases where there are reasonable grounds to suspect a payment is fraudulent.

Currently, banks must either process or refuse a payment by the end of the next business day.

Some concerns have been raised that mandatory reimbursement may tempt some people into “complicit” fraud.