Which? warns of issues for fraud victims under new rules

Starting on 7 October 2024, victims of authorised push payment (APP) scams, where a criminal tricks someone into transferring money to them, will be entitled to be reimbursed under a new mandatory scheme.

What are the new reimbursement rules?

Under the new rules set by the Payment Systems Regulator (PSR), all payment service providers must compensate consumers who fall victim to APP fraud when using Faster Payments. The reimbursement responsibility will be shared equally between sending and receiving firms. The new mandatory scheme will replace the current voluntary code known as the Contingent Reimbursement Model Code (CRM Code).

But in a potential setback for fraud victims, the PSR has announced it plans to reduce the maximum reimbursement amount from £415,000 to £85,000.

Fraud and scam complaints hit record high

The announcement comes as the Financial Ombudsman Service (FOS) reported a record high in fraud and scam complaints. In just three months, more than 8,700 fraud and scam cases were filed, with over half involving online bank transfers. The data also revealed that fraud is becoming more complex and sophisticated, with some scams involving multiple banks.

Having long criticised the voluntary approach for leading to inconsistent and unfair rulings for fraud victims, Which? has welcomed the new rules as a “big leap forward” in holding all payment firms accountable. But the consumer watchdog is concerned about the lack of public awareness about the new protections.  A Which? survey carried out in late August found that most payment firms had not informed customers of the upcoming changes, with only 32% of respondents saying they had heard about the new scheme from their bank or building society.

Which? also said it is “hugely disappointed” over the PSR’s decision to lower the reimbursement cap on claims from £415,000 to £85,000.

Why has the cap been lowered?

The original cap of £415,000 matched the FOS’s compensation limit. But pressure from banks and payment firms led to the decision to lower the cap to £85,000, which matches the current Financial Services Compensation Scheme (FSCS) limit paid to customers if a bank collapses. The move comes despite the PSR stating last year that it did not believe the FSCS limit was comparable to the maximum reimbursement limit for APP fraud.

As the date when the new rules are set to come into force approaches, the PSR has opened a two-week consultation on the cap change, citing additional data from the Financial Conduct Authority and the UK’s 15 largest payment firms regarding the impact of high-value scams.

Who will be affected by the lower cap?

According to the PSR, the £85,000 cap will cover around 90% of all APP scams, compared to 98% under the £415,000 cap. In 2023, there were 411 cases where victims lost more than £85,000, while 18 cases involved losses of more than £415,000.

Which? believes that the last-minute change will mean that victims of high-value frauds, such as impersonation, investment and conveyancing scams, will lose out.

Rocio Concha, director of policy and advocacy at Which? said:

“The PSR's report is clear – 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.”

The consumer group is calling on the regulator to maintain the original £415,000 cap 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 and on 7 October,” said Concha.

For fraud victims who do not receive full compensation, Which? advises them to escalate their complaint to the FOS, a free service where investigators assess whether providers could have done more to prevent fraud.

The PSR is taking views on the new lower £85,000 cap consultation until 18 September.