PSR consultation on APP scams: Requiring reimbursement - Which? response

Which? welcomes the PSR’s proposals for mandatory reimbursement of authorised push payment (APP) scam victims. Having highlighted this issue to the government, regulators and industry for a number of years, including through a super-complaint to the PSR in 2016, we believe these proposals could have a huge impact in reducing the financial and related emotional impact of APP fraud on victims if it leads to fairer decision-making by payment service providers (PSPs), and help incentivise better reporting and prevention measures across industry.

We strongly support the PSR requiring all PSPs sending payments over Faster Payments to fully reimburse APP scam victims in all but exceptional circumstances. Putting a reimbursement obligation on firms involved in a fraudulent transaction is by no means novel; it is a statutory requirement on PSPs involved in unauthorised bank payment transactions, with the exception of cases where victims are ‘grossly negligent,’ and is a core principle underscoring the voluntary Contingent Reimbursement Model (CRM) Code.

Given the many unfair and inconsistent decisions on reimbursement made by the 10 signatories to the CRM Code using its four exclusions for reimbursement, the PSR’s proposal for a single consumer caution exception to mandatory reimbursement will be a fairer and more effective approach to apply to around 400 PSPs, if it is properly implemented. Crucially, the consumer caution exception should only apply in cases where the PSP is not at fault. Firms must also be required to base their decisions on the reality of victims' experiences in which they believed they were acting appropriately at the time. In doing so, the burden of proof should be on the firm to establish exceptional circumstances.

We are not aware of convincing evidence to suggest that moving to a system of mandatory reimbursement could lead to customers taking less care when making payments, due to an awareness of consumer protections. Such theoretical claims are at odds with TSB’s real-life experience of reimbursing 98% of authorised and unauthorised scam victims under its Fraud Refund Guarantee. TSB has been clear that it has not seen evidence of “additional moral hazard” nor any significant change in the amount of fraud being reported as a result of its reimbursement policy.

Rather than relying solely on a direction on Pay.UK, the PSR should direct all PSPs to implement its rules on reimbursement. We are concerned with the PSR’s current proposal to direct Pay.UK to introduce this reimbursement obligation into Faster Payments scheme rules, given that Pay.UK lacks the PSR’s enforcement powers, cannot currently make rules for indirect Faster Payments participants, and does not cover CHAPS payments. Rather than relying solely on a direction on Pay.UK, the PSR should direct all PSPs to implement its rules on reimbursement to minimise gaps in protections, and so that the PSR can use its enforcement powers to sanction firms that do not meet its expectations. Though the PSR would be responsible for enforcing the reimbursement obligation under a direction, Pay.UK will need to play a key role in supporting PSPs to implement the direction, which may require the PSR to direct Pay.UK as well as PSPs to ensure that it fully meets its expectations in this regard. 

Moreover, the Government should also legislate so that scam victims can take action to enforce their rights directly against firms that are in breach of these obligations.