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28 Feb 2019

Bank transfer scam victims to get refunds from May 2019

Almost £400m has been lost to bank transfer fraud in the past two years

Victims of bank transfer scams will get refunded by their bank under a new reimbursement scheme agreed by banks, launching on 28 May this year.

The new scheme comes more than two years after Which? launched a 'super-complaint' to push banks and regulators to better protect people who were increasingly falling victims to scams that resulted in them transferring money to fraudsters.

Consumers and businesses have lost £381m to this type of fraud since 2017 - and because they authorised the payment to a criminal, have had no way of getting their money back.

A new code requires banks, building societies and other payment services providers to put more measures in place to protect customers from bank transfer fraud. And crucially, enables victims of this type of scam to get their losses refunded by their bank if they have done nothing wrong.

But the code is only voluntary - Which? is urging all companies to sign up to protect their customers.

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What is bank transfer fraud?

Also known as 'authorised push payment' or APP fraud, bank transfer scams happen when you send money to a fraudster from your bank account - either through trickery, because they're posing as someone else, or for goods or services that never arrive.

Fraudsters stole £145m in the first six months of 2018 through this type of fraud, of which just £31m - less than 22% - was ever recovered.

In some cases, scammers pose as the victim's bank, telling them to move their money a new account as their old one has been hacked. In others, the scammer might pretend to be the victim's solicitor, or to be selling goods or services that simply don't exist.

Bank transfer scams have seen people lose life-changing sums of money. Which? recently reported on victims of bank impersonation scams that lost 19 victims almost £350,000 between May last year and January 2019.

How does the new reimbursement scheme work?

Banks and payment providers have a new set of standards to follow to make sure they are protecting customers from bank transfer fraud, including detecting payments that are at high risk of resulting from a scam, providing warnings to customers about the risks of sending money via a bank transfer and identifying customers who might be vulnerable to scams.

Banks also have a duty to delay payments or freeze funds they suspect might have come about as a result of a scam.

If you have fallen victim to bank transfer fraud and either the bank you sent from money from, or the bank which received the money, has not lived up to these standards, you should be reimbursed. This will apply to fraud losses that occur when the scheme goes live on 28 May.

How long will it take to be reimbursed?

Your bank should tell you its decision about whether or not it will reimburse you within 15 business days (three weeks) of you reporting the scam. You should be reimbursed without delay.

if the bank needs more time to investigate, this cannot take more than 35 business days (seven weeks).

Who will reimburse me?

The bank you are a customer of (the one you made the payment from) should issue the refund, regardless of whether it was at fault or the receiving bank was at fault.

What if neither I nor the banks were to blame for the fraud?

This has been a contentious issue, but victims in a 'no blame' scenario will still be reimbursed under the code. The funding for this group of victims is coming from a small number of banks who were part of writing the code, and only lasts until the end of 2019.

In the meantime, banks and regulators are trying to find a longer-term way of funding reimbursement for no-blame victims - if no agreement is made by 31 January, there is a risk that this group could lose out.

What can I do if I'm not happy with a bank's decision on reimbursement?

If you've been a victim of APP fraud, and you're not happy with how your bank has dealt with your case, you can escalate it to the Financial Ombudsman Service, the body that resolves disputes between consumers and regulated financial companies.

You can complain about both the provider you made a transfer from and, as of 31 January, about the bank that received the stolen funds.

New rules for bank transfer customers to follow

While banks have new rules to follow to protect customers, the code also responsibilities on customers to be vigilant when making bank transfers.

Your bank could refuse to refund you if:

  • You ignored warnings about scams when setting up and amending payees, or before making a payment
  • You did not take care to establish that the person you were sending money to was legitimate
  • You were 'grossly negligent' - although this is very difficult to define
  • You're a small business or charity and did not follow internal procedures for making payments
  • You acted dishonestly when you reported the scam

Why is the reimbursement scheme only starting in May?

Now that the final code and reimbursement scheme has been agreed, the next three months are being used to sign as many banks, building societies and other payment service providers up to the code.

However, the following banks have already committed to the code:

  • Barclays
  • Lloyds Banking Group
  • HSBC
  • Metro Bank
  • Royal Bank of Scotland
  • Santander
  • Nationwide

Will this new scheme put an end to bank transfer scams?

While the new measures announced in the code should help victims get there money back and reduce some instances of the fraud taking place, there's more to be done to stop these scams from happening.

Banks are being required to introduce new technology called 'confirmation of payee', which matches the name of the recipient of funds to their account details, to make sure that the recipient of any payment is exactly who a customer intends them to be.

Currently, when setting up payee details the sort code and account number are checked to ensure that they are correct and can be sent to a valid bank account. While this helps to identify whether or not the payment will be sent to a viable account, it doesn't confirm any details about the account holder themselves.

This is where Confirmation of Payee steps in and adds a new step to verify that the bank details and account holder of the person receiving a payment are exactly who the person making a transfer expects them to be.

Banks were expected to have this technology in place by July 2019. However, a spokesman for UK Finance, the trade body that represents the banks, recently told the Treasury Select Committee this could be delayed until 2020.