Plans to reimburse bank transfer scam victims are flawed – Treasury Committee

Victims of fraud have been waiting too long for a fair and functional scam reimbursement scheme, MPs said.

Person uses a laptop
Person uses a laptop

Proposals to reimburse victims of bank transfer scams are fundamentally flawed, according to the Treasury Committee.

The Government has previously said the Payment Systems Regulator (PSR) will be able to require banks to reimburse APP (authorised push payment) scam losses.

The PSR is proposing that banks and building societies will be required to fully reimburse victims of APP scams, where the loss has a minimum threshold of £100.

However, the Treasury Committee said proposals to hand responsibility for implementing mandatory reimbursement to a separate body – Pay.UK – which is guaranteed by the financial services industry – are a conflict of interest.

Pay.UK will be responsible for ensuring the very banks and building societies that are its own guarantors pay out large sums to reimburse consumers, the committee added.

A voluntary reimbursement code is currently in place but concerns have been raised by consumer campaigners that this is not always being applied consistently by banks.

Some account providers also have their own refund guarantees in place, meaning that, at the moment, the chances of ending up with a refund after being scammed may come down to who someone banks with.

The committee said the reimbursement plans have already been delayed until 2024.

Its report said: “Victims of APP fraud have been waiting more than long enough.

“The PSR should ensure the payment systems industry has fully implemented mandatory APP fraud reimbursement by the end of 2023.”

MPs on the committee called for the PSR to revise its plans and take back control of the reimbursement process.

Harriett Baldwin, chair of the Treasury Committee, said: “Victims of fraud have been waiting far too long for a fair and functional scam reimbursement scheme.

“However, while these new proposals are a step in the right direction, the way the regulator plans to implement them is fundamentally flawed. Putting an industry body in charge of reimbursing scam victims is like asking a fox to guard the henhouse.

“The regulator needs to take back control of the reimbursement process, rather than leave it in the hands of an industry body which is inherently conflicted.”

The Treasury Sub-Committee on Financial Services Regulations has also raised concerns about the types of fraud which may not be covered by the proposals.

The Financial Services and Markets Bill making its way through Parliament will require the PSR to establish a system for mandatory reimbursement of APP fraud over the Faster Payments system.

MPs are also interested in understanding what similar measures are being taken in payment system CHAPS, which can be used for high-value transactions such as buying a house or a car.

TSB, which operates its own fraud refund guarantee, also recently raised concerns about APP frauds under £100 being excluded from reimbursement.

Chris Hemsley, managing director of the PSR, previously told MPs during a committee hearing that about 25% of frauds are below £100, which equates to about 1% of frauds by value.

The PSR has said banks can go further by choosing to pay the whole amount of every claim.

It will only be able to direct mandatory reimbursement once the right powers have been granted through the Financial Services and Markets Bill.

The regulator said it has received a wide range of views from industry, consumer groups and the TSC (Treasury Select Committee) Sub-Committee on Financial Services Regulations on the proposals regarding APP scam reimbursement.

A statement from the PSR said: “There is broad support for our proposals to make sure people are reimbursed and to improve fraud prevention.

“All feedback received, including from the TSC Sub-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. We will publish our final position in May 2023.

“Payment systems operators (including, for example, Pay.UK which operates Faster Payments and Bacs, or the card schemes which allow us to make card payments) have rules and requirements on their users.

“If a bank or other payment provider wants to use these systems, it has to follow the rules set out by the system operator. The PSR regulates these payment systems operators.

“In our consultation on APP scams, we set out proposals for the reimbursement rules, which we will define.

“We also set out our view that the most effective way to make sure victims of APP scams are reimbursed is by using our statutory powers to require changes to Pay.UK’s rules.

“This would mean if any financial firm wants to use the Faster Payments system, they will only be able to do so by adhering to the system rules, including around APP scam reimbursement.

“Our consultation also considered whether we would use our powers more broadly, by placing further regulatory requirements on payment firms to secure compliance with the requirements in Faster Payments rules.

“We are pleased that the TSC supports our proposal around reimbursement in principle. However, the report does include a misinterpretation of our proposal on how our powers can be used to require this. We have provided clarification to the TSC on this matter.”

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