Victims of bank transfer scams could soon be reimbursed for their losses if their bank was to blame under new plans announced today – but thousands of people will still be left out of pocket.
Bank transfer scams – sometimes called ‘authorised push payment’ or APP scams – happen when people are tricked into sending money to a fraudster from their bank to another.
People are losing life-changing sums to these scams. This week it was revealed that 34,000 victims have lost £145m in the first six months of 2018.
And because the payment is sent by you directly to a fraudster – no matter how sophisticated the scam – there’s no legal protection to ensure you get your money back from your bank.
New plans published today will ramp up protection of bank account customers, and reimburse them for their losses – but only if they’ve acted responsibly and the banks involved shoulder some of the blame for the fraud.
However, those who’ve lost money from an APP scam where neither they or a bank is at fault won’t be immediately covered by the reimbursement scheme – mainly because banks don’t think its fair that they should pick up the costs.
How big a problem is bank transfer fraud?
In 2017, around 43,875 cases of bank transfer scams were recorded, totalling losses of £236m, according to figures from UK Finance.
If you fall for a scam and pay by credit card, you can usually reverse the payment and recover your funds under Section 75 of the Consumer Credit Act. If funds are stolen from your account by a third party without your authorisation, your bank will usually refund you.
But if you pay by bank transfer, clawing back your funds is much more difficult. Your own bank usually cannot cancel the payment, unless you act within a short timeframe. In most cases, banks refuse to pay victims back, because the payment was authorised by the sender.
Two years ago, Which? launched a super-complaint demanding that banks and regulators take action on this growing type of crime, after hearing countless stories from customers who’d lost their life savings.
Some 390,000 people backed our campaign and, today, the banks have outlined how they plan to reduce bank transfer fraud and how customers will be reimbursed.
What are banks doing about it?
A new voluntary code has been produced by banks, regulators and consumer groups (including Which?) to tackle the issue of bank transfer scams, and reduce the number that occurs.
Banks and other ‘payment service providers’ who sign up to the code pledge to:
- Improve the detection of bank transfer scams, through analysing transaction patterns in bank accounts that appear fraudulent and training staff to look out for suspicious activity in an account.
- Ensure customers are warned about the risks of a bank transfer when they set up and make payments via an APP.
- Introduce a system called ‘confirmation of payee’, which matches the name of the recipient of money to their account details – something that doesn’t currently happen. The Payment Systems Regulator (PSR) has demanded that this is introduced by 1 July 2019 at the latest.
- Work harder to prevent fraudulent accounts being opened, and detect where genuine accounts are being used for fraudulent purposes.
- Act quickly to freeze funds that are suspected of being part of a scam, and improve the way the sending and receiving banks involved in a scam share information
However, the big win for consumers will be the introduction of a reimbursement scheme for victims of these scams.
How will the reimbursement scheme work?
The good news is that this new code introduces a reimbursement scheme for consumers who have been victim to an APP scam. But not all victims are guaranteed to get their money back.
If you have lost money through an APP scam and you weren’t to blame, but your bank didn’t meet the standards set in this code, you’ll get your money back.
But if neither you nor the banks involved in the transaction hadn’t done anything incorrectly, you won’t be refunded for the time being.
This is because banks say they shouldn’t have to bear the cost of refunding fraud victims when banks weren’t at fault. Until a way of funding losses in this scenario is agreed upon, this group of victims will not get their money back.
A number of options have been proposed – including adding fees when people want to send larger payment, requiring customers to buy insurance when they want to send large amounts of money, forcing the government to run a compensation scheme or other companies connected to fraud to fund compensation.
While Which? welcomes the steps taken in the code, we disagree with the exclusion of this group from potential compensation.
Jenni Allen, managing director at Which? Money, said: ‘It’s simply unacceptable that in cases where banks claim they could not have done anything more, it will still be the victim who is left to bear the cost – often with devastating consequences. Urgent action is needed to address this injustice.
‘The new code will only be judged a success when banks’ actions to protect their customers result in fewer scams, and those targeted by these sophisticated criminals are treated fairly and reimbursed swiftly.’
The reimbursement scheme will not apply to anyone who’s been a victim of fraud before the code was introduced.
How will a bank decide if I’m to blame for fraud?
The new code also puts a set of standards on bank account customers to make sure they act responsibly when transfer money.
Banks can reject a claim for repayment when fraud happens if a customer has:
- Ignored warnings banks have published when setting up new payees, amending existing payees or at the point of making a payment
- Sent money to someone even after the confirmation of payee system has failed
- Recklessly shared personal details or hasn’t taken steps to check they are sending money to the right person
- Has not been honest with a bank after a scam has happened
When will the changes kick in?
The consultation will be open until November. The changes are expected to be applied in early 2019.
Which? is urging banks and other PSPs to apply the code as soon as possible and sign up to the code quickly to protect their customers from these devastating crimes.