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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 new 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”.
The regulator must stick to its original plan for a £415,000 limit to protect victims of high-value scams— Rocio Concha, Which?
Rocio Concha, Which? director of policy and advocacy, said: “Victims of high-value fraud, such as investment scams and house purchases, stand to have their lives destroyed by this screeching U-turn.
“Yet somehow the regulator’s conclusion is that these people should be abandoned to provide a small benefit for parts of the finance industry that have been warned over their role in facilitating financial crime.”
She said the PSR has “caved in to pressure” and “dropped the crucial principle that a higher reimbursement limit gives the finance industry strong incentives to invest in improved fraud security measures, which could have disastrous consequences for victims.
“The regulator must stick to its original plan for a £415,000 limit to protect victims of high-value scams. If this Government is serious about fighting fraud, it must support the implementation of the new reimbursement scheme in full.”
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 a review had found that, out of some 250,000 cases, there were 18 instances in 2023 of people being scammed out of more than £415,000, and 411 involving 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.
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— David Geale, Payment Systems Regulator
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 more than 99% of claims covered, by volume, the regulator said.
PSR managing director David Geale 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 have 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 spokesman 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.
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— Anne Roughley, Lending Standards Board
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.”
