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Fraud refund scheme ‘fundamentally flawed’

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06/02/2023
Proposals to reimburse victims of bank transfer scams are “fundamentally flawed”, according to an influential group of MPs.

Fraud is the most common crime in England and Wales, with Authorised Push Payment (APP) scams – where someone is tricked into sending them a payment – being the most common.

In 2021, nearly 200,000 people fell victim to APP fraud, with a staggering £583m lost.

In a bid to tackle this, industry watchdog the Payment Systems Regulator (PSR) proposed rules which would force banks to adopt a mandatory reimbursement scheme for victims.

Essentially, it suggested a £100 loss threshold for reimbursement within two days of the fraud being reported, a £35 claim excess, and responsibility to lie with industry body Pay.UK.

‘Conflict of interest’

Last month, it was revealed that a quarter of victims could miss out on a refund because of the £100 loss threshold.

And now, the influential cross-party Treasury Committee has criticised the “painfully slow” implementation of mandatory reimbursement. It is also objecting to the proposals by the regulator which would hand the refund process to Pay.UK.

In its report Scam reimbursement: Pushing for a better solution, the group of MPs said there is an “inherent conflict of interest” by its proposal to hand responsibility of the mandatory reimbursement scheme to Pay.UK “which is guaranteed by the financial services industry”.

The report read: “The Committee sees this as an inherent conflict of interest, as Pay.UK will be responsible for ensuring the very banks and building societies that are its own guarantors – some of which are fundamentally opposed to the plans – pay out large sums to reimburse consumers.

“This creates an opportunity for the banking industry to slow down the implementation of the reimbursement plans, which have already been unacceptably delayed until 2024. The MPs state that mandatory reimbursement must be fully implemented by the end of this year.”

‘Fox guarding the hen house’

The group added that “Pay.UK lacks effective tools to ensure the financial services industry is complying with the rules”, as it has no regulatory or enforcement powers.

As such, the MPs are calling for the PSR to revise its plans and “take back control of the reimbursement process”.

Treasury Committee chair, Harriett Baldwin MP, said: “Victims of fraud have been waiting far too long for a fair and functional scam reimbursement scheme. However, while these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.

“The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted.”

‘All feedback considered carefully’

In response, the PSR, wrote: “In our consultation on APP scams, we set out proposals for the reimbursement rules, which we will define. We also set out our view that the most effective way to make sure victims of APP scams are reimbursed is by using our statutory powers to require changes to Pay.UK’s rules. This would mean if any financial firm wants to use the Faster Payments system, they will only be able to do so by adhering to the system rules, including around APP scam reimbursement.

“All feedback received, including from the TSC sub-committee, will be considered carefully before we make any final decision on the best course of action to make sure people are properly protected from these devastating scams.  We will publish our final position in May 2023.”

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