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The UK’s Payment Systems Regulator (PSR) has unveiled its proposals to protect consumers against rising authorised push payment (APP) scam losses and fraud, including mandatory reimbursement above a threshold.
The PSR has said it is ready to act fast on APP fraud, as it consults on new proposals to implement once the UK’s Financial Services and Markets Bill passes into law.
According to the regulator, this consultation, which closes on November 25, will ensure the PSR can make the necessary regulatory changes as soon as the law has been changed, allowing it to act fast on the problem.
Despite recent government turmoil, there is also an expectation that the bill won’t be delayed and sources close to the PSR have said it is “vital” that these requirements are being discussed now, due to high levels of fraud.
“Fraudsters have continued to devastate the lives of innocent victims through APP scams. We want to see all banks, building societies and other payment providers doing more to prevent APP scams from occurring in the first place,” said Chris Hemsley, the PSR’s managing director. “These proposals will mean everyone has more protection from scams.”
Among the proposals is a commitment from the PSR to make reimbursement mandatory in all but exceptional cases.
According to the regulator, reimbursement would be on all payments over £100 and subject to an excess of no more than £35, with a time limit for claims of no less than 13 months.
These options, the PSR says, may help payment service providers (PSPs) ensure their customers take care in making small payments, minimise claims for civil disputes and maintain proportionate costs, while protecting consumers appropriately.
Reimbursement for APP scams is currently applied by signatory firms under the Contingent Reimbursement Model Code (CRM), which is overseen by the Lending Standards Board.
Following the Code’s introduction, the rate of victim reimbursement by value rose from an industry average of 19 percent in the first half of 2019 to 41 percent by code signatories in 2020.
However, only half of all victims receive their money back.
At the same time, APP fraud is on the rise. Siting statistics from UK Finance, the PSR says that APP scams totalled £583.2 m in 2021, an increase of 39 percent.
During this period APP fraud overtook card fraud in the UK for the first time.
The PSR’s proposals also intend to improve the level of protection for APP scam victims, so there is greater consistency in protections for all victims, irrespective of who they bank and whether their bank is a signatory to the voluntary code.
Prevention better than refunds
Meanwhile, the regulator has also said that it wants to incentivise banks and building societies to prevent APP scams, noting that allowing fraudulent payments is the responsibility of both the sending and receiving banks or building societies.
Sending banks will still need to make the reimbursement under the proposals, but a mechanism will be put in place to ensure that the receiving bank, where the fraudster has control of the account, will also be liable.
This, the PSR hopes, will help lock fraudsters out of the UK’s financial system - although they are under no illusions that fraudsters may still find other ways of getting the money from victims.
“We’ve seen progress over the last few years. Some firms have even gone much further with fraud guarantees, so we know people can be protected effectively,” said Hemsley. “Our proposed rules will see everyone benefiting from strong protections, regardless of who they bank with.”
In the market, some PSPs have already taken the initiative to improve APP fraud management.
For example, TSB has offered a fraud refund guarantee since 2019: the bank fully reimburses all APP scam losses unless the customer has been grossly negligent. Refunds are capped at £1 million.
Meanwhile, since 2021, Nationwide has provided a Scam Checker Service (SCS).
Through this, customers can talk to the building society when they're not sure about a payment they're about to make. If the SCS reviews a transaction that turns out to be a scam, Nationwide fully reimburses the customer unless the SCS recommends otherwise.
Yet, there is plenty for the UK’s financial institutions to improve upon. Consumer group Which? released research in May that suggested UK scam victims face half-hour waits and hefty call fees when they call their bank's fraud lines.
Banks are also set to face tighter scrutiny on fraud next year, when the PSR begins publishing fraud and reimbursement data from the top 25 banks in the UK.
According to a PSR spokesperson, the finer details of this will be revealed later this year when the regulator publishes its policy statement on the matter.
