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Banks fail to agree on fraud refunds

Written by: Emma Lunn
Pay.UK calls for “no blame” fraud reimbursement – but has found a lack of industry consensus on how to finance a fund to reimburse authorised push payment (APP) fraud victims.

The UK’s banks can’t agree on how to pay for refunds to customers who have been tricked into transferring money to fraudsters via so-called authorised push payment (APP) fraud.

APP fraud is a type of fraud in which victims are manipulated into making real-time payments to fraudsters, typically by social engineering attacks involving impersonation of banks or other institutions. Losses to authorised push payment (APP) scams rose to £147m in the first six months of 2019.

Previously, scam victims who had done nothing wrong had no automatic right to get their money back from their bank – as they had authorised the transfer. But a temporary agreement has been in place since May, making it easier for victims of fraud to get money back.

There were plans for this agreement to be superseded in January by a new levy of 3p a time on bank transfers which would go to a central reimbursement fund. But Pay.UK says a number of banks have refused to support the levy idea.

The evidence from Pay.UK’s call for information revealed a lack of consensus among payment providers on how to fund “no-blame” reimbursement. It also points to a number of unresolvable issues with the proposal, including whether it would be effective in driving investment in fraud prevention, the impact it would have on competition, and whether it could be effectively implemented or enforced.

If an agreement cannot be reached it could reduce consumer protection from the new year.

Paul Horlock, CEO of Pay.UK, said: “We believe that innocent victims need to be reimbursed in a ‘no-blame’ scenario, as does most of the industry. We launched our call for information to understand from the industry how best this might be achieved.”

Despite Pay.UK’s proposal not receiving widespread support, there was overwhelming agreement among payment providers that customers should be reimbursed in a “no-blame” scenario.

So Pay.UK is now calling on industry and regulators to work together to find a solution that gives customers peace of mind and meets the needs of different types of payment providers.

“The evidence we’ve gathered suggests that giving payment providers more flexibility and control – for example, through a self-funding model – in the way they fund reimbursement is more likely to lead to better and consistent outcomes for consumers. It is critical that the whole industry plays its part,” said Horlock, “We’ve already seen examples of payment providers taking significant steps to protect their customers independently, and we believe a flexible alternative will create the conditions for all parties to tailor their approach to funding and offer consumers a consistent experience.”

Pay.UK is now inviting support from industry and regulators to work together to explore the feasibility of developing an “APP Guarantee” in the Faster Payments scheme. This would formalise payment providers’ commitment to protect their customers on an enduring basis in the event of a “no-blame” APP scam.

Trade association UK Finance said that ensuring victims receive compensation is an “absolute priority” for the payments industry.

Which? previously made a “super-complaint” to regulators about APP scam victims losing large amounts of money. It also criticised some of the UK’s biggest banks for not signing up to the voluntary code.

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