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Without further action, the current proposal on how UK victims of authorised push payment (APP) fraud get reimbursed is "half-baked”, according to the Treasury Committee.
The cross-partisan parliamentary committee has released a new series of documents related to its inquiry into APP fraud reimbursements in which it questioned financial regulators about various aspects of proposed reimbursement rules.
APP fraud has become a widespread concern in the UK. In 2021, 196,000 consumers lost £583m to these scams, overtaking card fraud for the first time.
To address this issue, in September, the Payment Systems Regulator (PSR) released a fraud strategy which included plans for mandatory reimbursements on all payments over £100.
The matter was also picked up by the Treasury Committee, which launched an inquiry into the proposed scheme pointing out serious concerns about it.
In a February report, the MPs argued that the proposed rules are “fundamentally flawed” because it makes Pay.UK, an industry body, in charge of reimbursing scam victims.
After new engagements with the regulators, the MPs have now highlighted a new set of concerns.
"Fraud is on the rise and our constituents are being robbed. Regulators need to get their skates on and sort out all of these exclusions and criteria quickly,” Harriett Baldwin MP, chair of the Treasury Committee, said.
“Our Committee will keep up the pressure so that implementation is not dragged out or half-baked."
Why the threshold of £100?
The PSR proposal will require banks to fully reimburse victims of APP scams where the loss is over £100.
In its response to the committee’s inquiry, the PSR defended this threshold saying that it was reached following extensive engagement with consumer groups and industry.
They argue that lower-value scam payments are typically the hardest for payment service providers (PSPs) to detect and prevent, so they may have the least ability to mitigate the costs of mandatory reimbursement.
This may allow PSPs to focus on preventing and reimbursing higher-value scams which often lead to greater harm due to the size of the financial loss, while this threshold could also mitigate against potential unintended consequences of “increased moral hazard”.
Although the Treasury Committee claims the response reveals that 24 percent of APP fraud payments are below £100, it equally shows that these payments together represent only 1 percent of the value of the APP scams cases.
The PSR also highlighted that £100 is the minimum threshold used for credit card payment reimbursements.
It could thus be “a level of protection that would be well understood by many consumers”.
Additionally, aligning the protections of the two products is in line with the PSR’s strategy to promote competition between payment systems, the regulator claimed.
“Consumers have a meaningful choice between using their credit card or a bank transfer, knowing that they will be protected for payments above £100.”
Who decides what is ‘gross negligence’?
The proposed reimbursement schemes enable banks to reject reimbursement requests from consumers that show “gross negligence’”.
The committee had asked the PSR about what actions would count as gross negligence.
In response, the regulator says it expects decisions from the Financial Ombudsman Service (FOS) to help define the exact scope of this concept, although the PSR said it is considering whether to issue guidance to ensure consistency.
The committee stressed the MPs are concerned that reliance on FOS decisions would be “a recipe for further delay in scam victims getting their money back”.
When approached by VIXIO, the PSR spokesperson said they “welcome the Treasury Committee’s continued interest in this important matter”.
“Our proposals will place strong incentives on banks to do more to detect and prevent APP fraud in the first place.”
“All in all the changes we’re proposing, and those we’ve already made, represent a significant step up in the level of protection and support people will get.”
The regulator also emphasised that the proposals are not final and are subject to change.
“We have received a wide range of views which we are currently considering.”
“All feedback received, including from the Treasury Select Committee, will be considered carefully before we make any final decision on the best course of action to make sure people are properly protected from these devastating scams,” the regulator stressed.
In addition to the PSR, the Treasury Committee also reached out to the Financial Conduct Authority, the Bank of England and the Financial Ombudsman, the responses of which have been published alongside the PSR correspondence.
