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Money transfer fraud victims to wait longer for compulsory refunds

Paloma Kubiak
Written By:
Paloma Kubiak

Victims of authorised push payment (APP) scams could continue to face devastating financial losses in the next year as the regulator consults on a delayed start date for a mandatory refund scheme.

The Payment Systems Regulator (PSR) has published an updated consultation on Faster Payments reimbursement rules setting out further requirements on financial service providers to refund APP fraud victims.

Back in July 2023, the PSR proposed that a compulsory refund scheme should take effect on 2 April 2024.

However, it is now proposing to push this back to 7 October 2024 – six months later and a year from now, based on feedback received.

The PSR said it wants to see the new protections in place “as soon as possible”, but revealed that responses suggested April was an “ambitious timetable”, with the majority of payment service providers not being ready to meet this date. They claimed this could lead to “inconsistencies, confusion and negative impacts on the success of the overall policy”.

The PSR added that while some of the industry supported the April start date, it proposed the October date which “might still be a challenging target for some firms”, though it welcomes views on this as part of the latest consultation.

Tackling soaring APP fraud

It comes as the financial industry looks to tackle soaring APP fraud which occurs when people are tricked into transferring money to a seemingly legitimate account which is actually 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 the new rules to take effect next year, victims of APP fraud will receive their money back from banks, building societies and payment companies within five working days, extended from the original 48-hour time limit proposed.

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.

There’s still ongoing debate around whether a claims excess would apply, but the minimum £100 claims threshold proposal has been scrapped.

Under the current voluntary “good industry practice” Contingent Reimbursement Model (CRM) launched in 2019, 66% of APP fraud losses were reimbursed.

‘Frustratingly slow progress on reimbursement system’

Rocio Concha, Which? director of policy and advocacy, said: “Hundreds of millions of pounds are lost every year to bank transfer fraud, and victims desperately need stronger protections in the form of mandatory reimbursement in all but exceptional cases.

“It has been seven years since Which? first launched a super-complaint over the treatment of bank transfer fraud victims, and progress towards creating a reimbursement system that doesn’t blame innocent victims for being duped by callous fraudsters has been frustratingly slow.  This further delay by the regulator means people who should have been protected risk facing devastating financial losses on top of the emotional ordeal of being targeted by scammers.

“There must be no backtracking on the PSR’s proposals to create a fairer and more consistent system of APP reimbursement. With bank transfer fraud continuing to cause misery for so many consumers, these changes can’t come soon enough.”

The latest consultation is open to feedback until 19 October 2023, with an update expected from the PSR in December 2023.

Chris Hemsley, managing director at the Payment Systems Regulator, said: “The PSR is leading the way on the fight against APP fraud in the UK, providing consumers with a significant new level of protection against this devastating crime.

“As we progress with our plans, the proposed direction builds upon our recent consultations, making sure all the right foundations are in place for the new requirements to be implemented by industry as soon as possible and in the most effective way possible.”