Authorised Push Payment (APP) scams occur when people are tricked into transferring money to a seemingly legitimate account which is in fact controlled by a scammer.

The value of APP scams has grown at an alarming rate in recent years. In 2021 fraudsters pocketed £583.2m, a 39% increase on the previous year, while in 2022 losses reached £485.2m.

Under new rules to take effect next year, victims of APP fraud will receive their money back within five working days, extended from the original 48-hour time limit proposed.

However, the Payment Systems Regulator’s (PSR) proposal to apply a claims excess and the maximum amount of money that will be refunded to victims is still up for debate.

As part of its mandatory set of minimum requirements, banks, building societies and payment companies will need to reimburse victims of all types of APP fraud that have occurred using the Faster Payments system. Its aim is to increase the current voluntary bank reimbursement rate for APP fraud from its current level of 56%.

The regulator is considering whether the new reimbursement requirement, or comparable protections, should apply to other payment systems such as CHAPS or Bacs.

However, it won’t apply to international payments and payments made on other systems such as a customer who sends funds to their account at a crypto exchange and pays a fraudster in a crypto currency.

Chris Hemsley, managing director at the PSR, said: “Once implemented, our changes will deliver a major shift from the status quo, giving everyone across the payments ecosystem a reason to act to prevent fraud from happening in the first place. That means everybody who makes payments can do so with much greater confidence, knowing that they will be better protected against fraudsters.”

Alongside a timeframe for refunds, the PSR has laid out additional protections for vulnerable customers and stipulated that the payment sending and receiving firms should take on an equal share of reimbursement costs. A time limit of 13 months to make a claim from when the payment was made has also been agreed on.

Claim excess still up in the air

Plans to enforce a minimum claim threshold of £100 and a £35 claim excess laid out in its proposal issued in January have now been scrapped.

Instead, only an optional claim excess will be introduced. The regulator said this would be clearer for customers and easier to administer.

The original suggestion of a £35 claim excess is now considered to be too low to act as incentive for customers to protect themselves from the risk of fraud. However, the regulator does acknowledge that if the excess was set at £100, for example, it could in reality act as a minimum threshold for claims.

When the proposals were released at the start of the year, TSB warned that if the £100 minimum claim threshold went ahead, one in four victims could be excluded from getting their money back. The bank said this was a sum households “simply cannot afford to lose in the current economic climate”.

TSB added that while APP scam losses of £100 or less account for just 1% of cases, it equates to £5m stolen from UK households every year.

Whatever the level a minimum claim excess is set at, it will be optional. However, all sending banks or payment companies will still have to report all APP fraud claims regardless of value to the companies receiving the funds.

The claim excess and maximum reimbursement value will be announced by the end of the year.

However, the claim excess will not apply to vulnerable customers nor will the same gross negligence standards that are applied to non-vulnerable customers when the bank or payment company that sent the payment investigates the fraud.

The regulator added: “Gross negligence is a high bar, which we believe would only be applied in a small number of cases and therefore the exception for vulnerable customers would only impact a limited number of cases.”

A spokesperson for Pay.UK, the standards body for the Faster Payments system, said: “The PSR’s reimbursement regime will mean better outcomes for innocent victims of fraud. We’re pleased the PSR has said it will now use its powers to compel all banks and building societies which make and receive payments over the UK’s Faster Payment system to reimburse victims of APP scams when the regime goes live in 2024.

“We will ensure that our payment system rules reflect the PSR’s new requirements and work in concert with the overall obligation that the PSR is placing on banks and building societies. Together with the PSR’s strong regulatory nforcement powers, this will ensure that reimbursement happens more consistently.”