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Banks wrongly denying fraud victims compensation in up to 8 in 10 cases

Ombudsman data exposes a reimbursement lottery

Banks wrongly denying fraud victims compensation in up to 8 in 10 cases

The Financial Ombudsman Service, which manages disputes between financial firms and customers, is ruling against banks in 73% of authorised fraud cases, data exclusively obtained by Which? demonstrates.

If you’ve been tricked into sending money to a scammer, you may be able to get a refund from your bank.

The biggest banks are signed up to the voluntary Contingent Reimbursement Model (CRM) Code, which is designed so victims of authorised push payment fraud (APP) are treated fairly and consistently when they ask for compensation.

If your bank refuses compensation, you can escalate your case to the Financial Ombudsman Service (FOS).

But the number of customer complaints about banks’ handling of authorised fraud – the vast majority of which are APP – landing at the FOS more than doubled in the 2020-21 financial year, from 3,600 to 7,770. And three-quarters (73%) of these were upheld in favour of the customer.

Here we explain which banks are most likely to be overruled, and why the current system is failing fraud victims.


What is APP fraud?

APP fraud – being tricked into transferring money to a fraudster – is fast becoming one of the UK’s biggest frauds.

Losses hit £355.3m between January and July, outstripping losses to card fraud. Banks are required to refund you for losses to unauthorised fraud such as card fraud, but not APP fraud.

The voluntary CRM code was launched in May 2019 and requires signatory banks to provide effective warnings to customers, identifying vulnerable customers and acting quickly when a scam is reported. If an APP scam

In return, you’re expected to pay attention to take care, have a reasonable basis for believing the payment is genuine, and pay attention to warnings.

Crucially, signatory banks must reimburse customers even if both parties have done nothing wrong.

Ombudsman routinely overrules banks

NatWest and The Royal Bank of Scotland (RBS) – part of the same banking group – are getting it wrong in nearly nine in ten cases, with Santander, Bank of Scotland and Starling following closely behind.

Authorised fraud complaints against Lloyds Bank, Revolut and Nationwide are also being upheld in at least 74% of cases. Aside from Revolut, all of these banks are signed up to the CRM Code.

These banks had more than 70% of customer complaints about APP upheld by the FOS between 1 April 2020 to 31 March 2021:

New cases Closed cases Uphold rate
RBS 178 183 86%
NatWest 854 788 86%
Santander 906 627 82%
Bank of Scotland 664 582 81%
Starling 120 29 80%
Lloyds 877 720 78%
Revolut 233 112 77%
Nationwide 503 367 74%
Monzo 344 111 73%

The number of cases here may include some authorised fraud payments that didn’t involve a push payment.

The uphold rate doesn’t directly relate to the number of closed cases, as closed cases can include those complaints withdrawn by the customer, or where the FOS has decided it can’t or shouldn’t investigate.

It’s also worth noting that Starling’s uphold rate is based on a much smaller number of closed cases.

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Banks can move faster

While 40% of all complaints to the FOS are resolved within three months, only 20% of authorised fraud cases are, leaving victims waiting for life-changing amounts of money.

Banks can however resolve batches of complaints before an FOS investigator reviews the evidence of both parties.

While this still means too many victims are being forced to fight for a fair outcome, early resolutions do save them time and indicate which banks are willing to learn from FOS decisions.

Separate data obtained by Which? shows that NatWest is very proactive when it comes to settling complaints before a view is issued, having settled 465 cases in relation to authorised fraud complaints covered by the CRM Code since April 2020. NatWest Group told us that their proactive stance and good relationship with the FOS meant that ‘our overturn rate for the period is inflated, we do however expect to see this normalise in 2022.’

In stark contrast, HSBC settled fewer than 10 cases early, Santander settled 16, and Lloyds Banking Group – which includes Bank of Scotland and Halifax – settled 82. All three also had a disproportionate number of authorised fraud cases still open at the end of the last financial year.

Make APP reimbursement mandatory

What these figures don’t show us is the number of victims who’ve been wrongly denied compensation, but haven’t approached the FOS.

Escalating a complaint to the FOS is free, and can be done online, but not all victims will be aware of or able to use the service. They’re left dependent on their bank to make the right decision.

Clearly the current reimbursement lottery cannot continue, as banks cannot be trusted to deal with reimbursement themselves.

That’s why Which? wants the government to swiftly take the necessary action to enable the Payment Systems Regulator (PSR) to introduce mandatory APP fraud reimbursement for all firms using Faster Payments.


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