Why banks may no longer refund fraud victims

Telegraph

07-06-2025

Lenders are lobbying for new fraud reimbursement rules to be watered down over fears scam victims are being told to lie to their banks.
Since last October, companies which handle payments have been required to give victims of 'Authorised Push Payment' (APP) fraud their money back, up to a limit of £85,000.
In the first three months, 86pc of money lost to the scams – approximately £27m – was reimbursed to consumers by 60 firms.
The current rules mean that, other than a £100 'excess' which firms can remove from payments, the only reasons that customers can be denied a payout are if they've ignored warnings, failed to quickly notify their bank of the fraud, refused to share information about the scam or do not consent to a police report being made.
But in meetings in May, banks demanded that requirements for victims to act reasonably – and not to lie to their bank – were made stronger.
This would mean that customers could be denied refunds in more cases.
The Payment Systems Regulator (PSR) will hold an independent review of the mandatory scheme in October, and will then recommend changes.
Problems raised include the high reimbursement limit, compliance monitoring by Pay.UK, which administers the scheme, and the limited number of exemptions for refusing payouts. Lenders also said they should be able to give clear warnings about lying to them, as victims are often guided to do by fraudsters.
One bank told industry magazine The Banker that: 'The [consumer negligence] bar is set so high that in almost all these cases a customer can be incredibly reckless, can lie to their bank, can ignore warnings and still get their money back.'
Riccardo Tordera, director of policy and government relations at The Payments Association (TPA), said: 'The PSR says just 2pc of claims are rejected on this basis yet acknowledges no clear shift in consumer behaviour.
'Meanwhile, the Financial Ombudsman Service and the PSR both apply a stricter definition of gross negligence than common law, which could make enforcement of reimbursement policies challenging in a British court.'
Under the previous voluntary code – called the Contingent Reimbursement Model (CRM) – customers could be refused for ignoring warnings or failing to verify the payee. Now the test is much stricter.
Reimbursement numbers never jumped above 75pc under the old scheme – compared to 86pc for the mandatory payouts.
APP scams see victims convinced to move their money themselves, eventually into a 'safe' account controlled by the fraudsters, at which point it is lost. Ticket sale scams, such as those experienced by Oasis and Taylor Swift fans, are also considered APP frauds.
At first glance, the implementation has gone well. The amount lost in APP frauds dropped by 2pc between 2023 and 2024, according to UK Finance, and the number of cases fell by a fifth. But £450.7m was still lost to fraudsters last year.
But the scheme has not been without its critics. Before the scheme was implemented, some parts of the industry warned of the potential problems of moral hazard – which is when consumers are incentivised to lie – and that fraudsters would pose as victims.
This, it was claimed, would drive a significant spike in claims. But these fears have not materialised.
Originally, the reimbursement limit was set to £415,000 – with firms expected to pay out just days after claims were made. But lobbying saw the limit dropped to £85,000, the same as the Financial Services Compensation Scheme (FSCS), which protects money deposited with banks.
Smaller and medium-sized payment companies had said that one large claim could wipe them out.
David Geale, managing director of the Payment Services Regulator (PSR), which is responsible for the scheme, said in May that: 'While it is too early to draw firm conclusions based on the period covered by this data, we have not seen evidence of spikes in claim volumes that some had feared would occur under the policy.'
Before the scheme was introduced, there was a voluntary code which most of the major banks were signed up to, run by the Lending Standards Board. Sources at the LSB said last year, before reimbursement was mandatory, that they had not seen fraudulent claims.
Rocio Concha, director of policy and advocacy at Which?, said: 'Based on the available data from the PSR, the new mandatory scheme appears to be performing well, with more fraud victims getting their money back.
'Sections of the industry had tried – without producing any evidence – to claim that mandatory reimbursement would lead to consumers acting irresponsibly or even teaming up with criminals to con banks out of cash. This seemed ludicrous at the time and initial insights have borne that out.'
Ms Concha added that while the number of cases were down, there was another worrying trend.
She said: 'Latest industry figures suggest more victims are being tricked into sending money to bank accounts overseas controlled by fraudsters. That is concerning as these transfers aren't covered by the new mandatory reimbursement rules.'
A spokesman for the PSR said: 'We have always been clear that we would have an independent review following the implementation of the policy.
'If we think there are key learnings or adjustments to make to our policy, we will consider those carefully before making any changes.'