All but 2 banks silent over new £100 excess on fraud refunds

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New fraud refund rules start in less than 3 months, but questions remain about how much banks will pay out

Tens of thousands of fraud victims face getting no refund despite new rules designed to force banks to reimburse money lost in bank transfer scams.

The new rules, which come into force on 7 October, apply to “authorised push payment” (APP) fraud – when a fraudster tricks you into sending money from your account to an account that they control, for example by selling items online that don’t exist or pretending to be from your bank.

But major questions remain over how banks and payment firms will apply the rules, which allow them to avoid paying the first £100 of any refund claim if they choose, unless the customer is classed as vulnerable.

When Finder contacted 22 major UK banks in July, to ask if they will apply the £100 “excess”, just one confirmed that it won’t do so, and another said it would be “case by case”.

The rest said they were still considering the rules, or refused to answer. This is despite the fact the new refund requirements were confirmed last December and the scheme starts in less than 3 months.

Some industry insiders believe banks have already made up their minds, but are unwilling to say. Meanwhile, customers remain in the dark.

A spokesman for the watchdog bringing in the rules, the Payment Systems Regulator (PSR), told Finder: “We would have expected the payment service providers [which include banks] to have done more by now in terms of educating people about the new rules and how they will be approaching them, including the £100 excess.”

1 in 4 APP frauds below £100

In 2023, fraudsters stole nearly £1.2 billion in the UK. Victims of APP fraud lost £459.7 million, and got back 62% of that. Under the new rules, refunds are expected to rise – but it’s unclear by how much but the PSR says it will be “the vast majority” of such cases. The maximum refund will be £415,000 in line with the top payout the Financial Ombudsman can award.

According to industry figures, 1 in 4 APP fraud losses is below £100, and in 2023, the number of cases rose 12% to 232,429.

Liz Edwards, money expert at Finder, said: “Based on 2023 figures, more than 58,000 cases would have resulted in no refund if all companies had applied the excess. £100 is a lot of money to many people, and banks need to be clear with customers where they stand.

“Figures from the industry also suggest that young people could be disproportionately affected if banks apply this excess.”

Among the banks that Finder contacted, only AIB confirmed it would not apply the £100 excess to refunds. Virgin Money said it would “consider APP fraud claims on an individual basis, with the outcomes dependent on the specifics of each case”.

Others said they were awaiting clarifications or were continuing to work through details – or they refused to answer.

Some banks have recently been enhancing safeguards. Monzo’s latest features include the option to let a trusted contact double check a bank transfer before you make it, and the “Monzo Call Status” checker already allows you to see if the bank is really calling you. TSB has offered a fraud refund guarantee since 2019 and Nationwide customers have had access to a scam checker since 2021.

Making tech giants pay up

Under the rules, the sending and receiving firms split responsibility 50/50 for the refund, which is seen as an incentive for companies to act if an account used by a fraudster is with them. The industry points out that the burden for APP refunds has fallen on banks and payment providers even though a lot of APP fraud begins on social media.

A Labour Party draft plan proposes making tech giants liable for some fraud refund costs. The prime minister, Sir Keir Starmer, has accused big tech companies of doing “little or nothing” about preventing or detecting fraudulent transactions.

UK Finance, which represents 300 firms including banks, said: “Fraud has a devastating impact on victims and the financial services industry spends billions on efforts to prevent it happening in the first place and keep customers safe. For those that do fall victim to fraud, the banking sector is the only one that reimburses customers, paying out hundreds of millions each year. This is despite the fact the vast majority of APP fraud starts on social media or via telecommunications.

“That is why we have called for the next government to make online platforms, internet service providers and telecommunications companies work harder to stop fraudsters exploiting their systems and look at how these sectors can be made to contribute to the cost of fraud reimbursement.”

The Payments Association, which represents payments firms including fintechs, says that the industry views APP fraud as the most damaging type of fraud for businesses and consumers, based on its research.

The organisation unsuccessfully lobbied for the regulator to lower the maximum refund limit from £415,000 to £30,000, saying this would cover 95% of cases. The £415,000 limit might encourage fraudsters to try to steal higher amounts, it said, and a payout of that size could “sink a fintech”.

Paul Evans, an expert at fraud prevention specialists Featurespace, said: “Banks are continually looking for improvements for their customers. With these new rules, those improvements have been accelerated. We’re seeing the accelerated adoption of AI in fraud prevention, giving banks the power to detect and stop scams before they occur.

“Though game-changing, there are areas of the regulation that remain a concern to me. For instance, the excess of £100 will disproportionately impact customers who claim for lower values. If financial institutions don’t fully refund claims around or below this, those in greater need will be harder hit by the regulations. Hopefully, discretion will be used to only apply the excess to larger or repeat claims.”

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