Fraud victims who pay the 'wrong' way could be left with nothing

Fraud victims face wildly different outcomes depending on how they transferred their money to criminals, leaving many victims with nowhere to turn.

Under new rules from the Payment Systems Regulator (PSR), which was introduced on 7 October, banks and other payment providers now have to refund victims of authorised push payment (APP) fraud up to a limit of £85,000 per claim in all but exceptional cases. 

However, these rules only apply to UK transfers using Faster Payments and CHAPS. 

If you used another method to pay a scammer, you may have no protection whatsoever.

Here, we explain why the new fraud reimbursement scheme is an important step forward – but victims still face a reimbursement lottery.

Falling through the gaps

Our April survey of 1,012 UK adults who had lost money to fraud in the past two years found that 54% had their details used by a fraudster – for example, to make unauthorised purchases or open credit accounts in their names. Unauthorised fraud should be refunded in nearly all cases. 

But 41% of victims said that they were tricked into authorising a payment to a fraudster and therefore faced a lottery to get their money back. 

Some 42% of those sent money to UK bank accounts and could have potentially claimed the money back under a voluntary scheme known as the CRM Code. 

They would now benefit from strong protections under the PSRs new mandatory scheme, up to a cap of £85,000.

But victims tricked into sending money to foreign bank accounts (11%) or using cryptocurrency exchanges (17%), digital wallets such as Apple Pay or PayPal (15%), gift cards (6%) and foreign exchange platforms (6%), may have lost everything.

Money sent via these methods usually isn't eligible for compensation via your bank.

Card payment problems

The Financial Ombudsman Service (FOS) recently warned that it has seen a growth in people inadvertently using their credit or debit card to pay fraudsters.

If you use a credit card to send money directly to a scam company, you may be able to rely on Section 75 of the Consumer Credit Act for breach of contract or misrepresentation. However, there's no legal safety net when you use a debit card (only weaker schemes, such as chargeback or PayPal’s Buyer Protection). 

And in many cases, both Section 75 and chargeback are of no use to authorised fraud victims, because scammers typically ask you to first pay a genuine company – such as a cryptocurrency exchange or money transfer app – before the money is moved to an account the criminal controls. 

That means the cryptocurrency exchange or money transfer app has provided the intended services, albeit as part of a chain of fraud.

Which? is concerned that many people are unaware of these gaps.  

• Find out more: fraud and how do I get my money back?

Take your fraud complaint to the Financial Ombudsman 

No matter how you transferred the money, you should still report the fraud and escalate your complaint to the FOS if your provider dismisses your claim. 

If, for example, it failed to spot highly unusual and uncharacteristic patterns of spending, you could have a strong case for reimbursement.

And if you've lost more than £85,000 to APP fraud (the reimbursement cap under the new scheme) and your payment provider won't refund the rest, the FOS can look at your claim because it has a compensation limit of £430,000.

Disappointingly, 32% of fraud victims we surveyed this year said they didn’t make a complaint to the FOS because they hadn’t heard of it – the same proportion as our 2022 survey of fraud victims. 

It's vital that people who fall victim to fraud are aware that they can escalate their case to the FOS to be independently reviewed. Previous Which? investigations have found that banks and other financial firms unfairly deny victims reimbursement in as many as eight in 10 cases. 

• Find out more: how to take a complaint to the Financial Ombudsman Service.