Bank transfer fraud reimbursement limit set to be cut under plans

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The maximum amount that banks would have to reimburse customers for when they have been tricked into sending money to a fraudster is set to be slashed under plans.

Mandatory rules will come into force from October 7, requiring banks to reimburse customers who are victims of bank transfer scams unless the customer has been grossly negligent.

The previous maximum reimbursement value had been set at £415,000 under the plans.

But on Wednesday, the Payment Systems Regulator (PSR) announced a consultation into a new lower cap, set at £85,000.

Consumer group Which? branded the move “outrageous” and suggested it could expose some people to “devastating financial and emotional harm”.

Rocio Concha, Which? director of policy and advocacy, said the move had followed “months of lobbying from firms” adding: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect.”

She continued: “Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures.

“This makes it more likely that scammers will continue to thrive on some payment platforms.”

The PSR said the cap of £85,000 would be in line with the Financial Services Compensation Scheme (FSCS) limit which is “well understood” by customers.

The regulator also said that a review had found that out of over 250,000 cases – there were 18 instances in 2023 of people being scammed for more than £415,000, and 411 instances of more than £85,000.

The analysis also indicated that “almost all” high value scams are made up of multiple smaller transactions, reducing the effectiveness of transaction limits as a tool to manage exposure.

The PSR said it had also considered additional evidence from the industry and Financial Conduct Authority (FCA) about the maximum liability amount.

The proposed new cap will still see over 99% of claims covered, by volume, the regulator said.

David Geale, the PSR’s managing director, said: “We listened to concerns about the reimbursement limit and committed to collecting more evidence to inform our approach.

“As a result, we are now consulting on a limit that still covers the vast majority of authorised push payment scams and strikes the right balance.

“Under our proposals, consumers in the UK will still receive world-leading protection, payment providers will still be heavily incentivised to improve anti-fraud protections and we maintain effective market competition and innovation.”

Pay.UK, which operates Faster Payments, the payment system to which the protections apply and through which most APP fraud flows, has confirmed it will be ready for October 7, the regulator said.

The consultation closes on September 18.

The PSR will confirm its final approach before the end of September.

Many banks are currently signed up to a voluntary reimbursement code, but concerns have previously been raised that customers face a “lottery” in getting their money back.

The Financial Ombudsman Service (FOS) said this week that scam-related complaints had reached their highest level since at least early 2018.

In the first quarter of this financial year (April 1 to June 30), consumers lodged 8,734 gripes about fraud and scams, the FOS said.

More than half were in relation to customer-approved online bank transfers, also known as authorised push payment (APP) scams.

A spokesperson for Pay.UK said: “We will continue to work with the PSR and industry to comply with any changes following the PSR’s announced consultation and its outcome.”

Anna Roughley, head of insight at the Lending Standards Board (LSB) which oversees the voluntary reimbursement code said the current consumer protections against APP fraud provided by the voluntary code have no cap on reimbursement.

She said: “Importantly, the code also contains specific provisions on APP fraud prevention and detection, which stop consumers from being harmed, stop money from reaching criminals, and stop firms from having to face the cost of reimbursement.

“The PSR’s new framework will be bringing many new payment service providers into the scope of a reimbursement scheme for the first time.

“As the sector adapts to the new framework, we would urge all payment service providers to look to the lessons of the (current voluntary) code and the emphasis it put on prevention and detection.”