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Calls for bank fraud reimbursement lottery to end

Emma Lunn
Written By:
Emma Lunn

Which? says banks must not be allowed to rewrite the rules on fraud reimbursement as this would lead to fewer scammed customers getting their money back.

The consumer champion found that almost three quarters of complaints about how banks treat victims of authorised payment fraud are upheld. It warns that consumers will see a drastic drop in protection if firms are allowed to rewrite the rules on bank transfer scam reimbursement.

In 2020/21, the Financial Ombudsman Service (FOS) upheld 73% of cases for authorised fraud. This is a significant increase on the uphold rate of 57% for fraud and scams cases overall, and 32% of all complaints made to the FOS. A report by Which? in April 2021 found a culture of ‘victim blaming’ in many high street banks when it comes to authorised payment fraud.

About 90% of authorised fraud complaints were about bank transfer or ‘authorised push payment’ (APP) scams which occur when someone is tricked into transferring money to a bank account operated by a scammer.

Back in 2019, banks helped to create a voluntary industry code, which commits signatories to return money where the customer was not at fault. But decisions published by the FOS show some banks are unfairly denying reimbursement to victims of fraud.

Which? has seen evidence from case studies that show some banks are setting the bar unreasonably high when it comes to the steps scam victims are expected to have taken when making a payment in order to be eligible for reimbursement.

Decisions from the Financial Ombudsman and a recent review of the code by the Lending Standard Board are consistent with the consumer champion’s view.

In one example, a Nationwide customer was initially denied reimbursement for £53,500 after failing to spot a fraudster had subtly changed one digit of their solicitor’s email address and tricked them into sending money to their account.

The FOS said it wasn’t realistic for firms to expect customers to look out for tiny discrepancies in an email address, such as in this case where an ‘i’ rather than an ‘l’ came at the cost of tens of thousands of pounds, and resulted in a house purchase falling through.

In another, a Santander customer was wrongly denied reimbursement for £2,299 after booking flights on the premise that he was booking through a travel company but was duped by a fraudster.

The criminal was operating a sophisticated con by providing convincing fake documents such as an ATOL certificate and a flight schedule, to the extent that the FOS said it was reasonable for the customer to believe he was dealing with a legitimate operator.

The Payment Systems Regulator (PSR) has put forward proposals to reform how consumers should be protected against APP scams. Surprisingly, despite clear issues with how banks are treating customers when they fall victim to this crime, one of the options currently on the table is to let firms rewrite the rules on when a consumer is entitled to reimbursement, subject to approval by the regulator.

Which? argues that taking such an approach would be an abdication of responsibility by the regulator and a demonstration that it has not learned the lessons of its approach over the past four years.

More than £700,000 is being lost to bank transfer scams every day, but less than half of the money lost to this type of crime is currently returned to victims, with banks routinely blaming customers for falling for what can be highly sophisticated crimes.

Which? believes the right option to address the shortcomings of bank transfer scam protections is for the PSR to take forward its alternative proposal to require all firms to reimburse customers who have acted appropriately. This would abolish the reimbursement lottery that leaves a victim’s chances of getting their money back dependent on where they bank.

This route requires the regulator to be granted powers from the Treasury in order to take action, so it should proactively work with the government to secure them without delay.

Gareth Shaw, head of money at Which?, said: “The evidence that the bank transfer scams code is not being applied consistently or fairly by firms is overwhelming, and it is unacceptable for so many victims of crime to be abandoned when they turn to their bank to try and get their money back.

“As a result, for the regulator to suggest that protections could be improved by putting banks in control of rewriting the rules on reimbursement is astonishing. The PSR must scrap this idea and take matters into its own hands by writing the new rules, making it mandatory for all firms to reimburse victims when they are not at fault.”