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Bank transfer scam victims left unprotected as 'no consensus' on regulation

There were 57,549 bank transfer fraud cases reported in the first half of 2019. Photo: Getty

The industry cannot agree how an initiative to refund blameless victims of bank transfer victims should be funded, according to the UK's payment scheme operator.

Pay.UK said it has concluded there is "no industry consensus" on the financing of a central fund to reimburse innocent victims of authorised push payment (APP) “no blame” fraud.

APP scams happen when someone is tricked into transferring money directly into a fraudster's bank account, often because the criminal is posing as a legitimate organisation such as a bank, HM Revenue and Customs or the police.

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According to UK Finance, there were 57,549 APP fraud cases reported in the first half of 2019, resulting in a total of £208m being lost. Financial providers were able to return just £39m of this.

Previously, scam victims who had done nothing wrong had no automatic right to get their money back from their bank – as they had authorised the transfer.

But a voluntary industry code was introduced in May which makes it easier for victims who have done nothing wrong, and neither has their bank, to get their money back in "no blame" situations.

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However, the long-term funding of the code still needs to be agreed.

Consumer group Which? said the next government should make the code and reimbursement mandatory to prevent innocent scam victims from losing life-changing amounts of cash.

Trade association UK Finance said that ensuring victims receive compensation is an "absolute priority" for the payments industry.

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Pay.UK said it had found a lack of consensus among payment providers on how to fund "no-blame" reimbursement.

It had looked at a proposal for a rule requiring all payment providers that directly connect to the faster payments system to pay into a shared central fund.

But it said that as well as a lack of consensus, the evidence it received also pointed to other issues with the proposal, including whether it would be effective in driving investment in fraud prevention, the impact it would have on competition, and whether it could be effectively implemented or enforced.

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Pay.UK also said the approach of creating a shared, central fund could also dampen individual incentives to invest in fraud controls.

It said that despite the proposal not receiving widespread support, there was overwhelming agreement among payment providers that customers should be reimbursed in a "no-blame" scenario.

Pay.UK is now urging the industry and regulators to work together to find a solution.

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Paul Horlock, chief executive at Pay.UK, said: "It is critical that the whole industry plays its part. We’ve already seen examples of payment providers taking significant steps to protect their customers independently, and we believe a flexible alternative will create the conditions for all parties to tailor their approach to funding and offer consumers a consistent experience.”   

Pay.UK is inviting support from industry and regulators to work together “to explore the feasibility” of developing an “APP guarantee” in the faster payments scheme, it said.

This would formalise payment providers’ commitment to protect their customers on an enduring basis in the event of a “no-blame” APP scam.

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Which? previously made a "super-complaint" to regulators about APP scam victims losing large amounts of cash.

Jenny Ross, Which? money editor, said: "Three years on since we made our super-complaint and this is yet another missed opportunity to properly protect people against the devastating consequences of bank transfer fraud.

"It's clear that a voluntary, industry-led approach to protecting scam victims is not enough. The next government must work with the regulator to make the code and reimbursement mandatory – to finally ensure millions of people are no longer at risk of losing life-changing sums of money."

Stephen Jones, chief executive of UK Finance, said: "Ensuring victims of APP scams receive compensation when their money is stolen by criminals is an absolute priority for the payments industry.

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"There is strong agreement across the sector that we must all work together to create a central, long-term, sustainable funding system to compensate the victims of scams in 'no blame' situations under the voluntary industry code introduced in May.

"UK Finance and the industry have been working closely with consumer groups to find a solution to this issue and to ensure that the cost of payment frauds are met by all those responsible, both within and outside the payments industry.

“We are therefore disappointed a way forward has not yet been agreed.”

He added: "The industry will continue to call for new legislation to make the code mandatory and agrees with the Treasury committee and Which? that issues of liability and reimbursement should best be addressed by new laws rather than just a voluntary code alone.

"We urge any future government to work together with the Payment Systems Regulator to put new laws in place quickly that ensure victims are protected and reimbursed."