Payouts to scam victims watered down from proposed £415,000 before new banking rules come into effect
- Mandatory refund scheme to be implemented by the payment systems supervisor
Banks must compensate fraud victims up to £85,000 within five days under a new compensation scheme, after the original limit of £415,000 was slashed.
From October 7, compensation for victims of fraud will be mandatory, according to the rules of the Payment Systems Regulator.
The new rules will see the maximum payout reduced from the £415,000 limit proposed in an earlier draft of the regulations.
Making money: Scammers stole over £450 million from victims in 2023 alone, and APP fraud is on the rise
According to the Payment Systems Regulator, 99 per cent of claims would fall under the £85,000 cap. In 2023, there were only 18 claims over £415,000 and 411 claims over £85,000.
Currently, banks are voluntarily refunding victims of fraud, but many have opted to sign up to the Contingent Reimbursement Model (CRM) code. This means that customers will get their money back, except in exceptional circumstances.
Under the new system, once the claimant has repaid the amount, banks or payment companies will be able to recover half of the money from the financial institution the scammer used to receive the funds.
The Payment Systems Regulator said the Bank of England would review the £85,000 limit within the next 12 months.
In a statement, the Payment Systems Regulator said: “This was a carefully balanced decision, which provides significant protection for victims of fraud and strikes an appropriate balance with the innovation and competitiveness objectives of the PSR and ensures that payment systems work well for everyone.”
The number of complaints about fraud and scams to the Financial Ombudsman Service reached its highest level this year between 1 April and 30 June.
8,734 complaints were filed by consumers, compared to 6,094 in the same period a year earlier.
More than half of the cases involved customer-authorized bank transfers, also known as authorized push payment (APP) fraud. In this type of fraud, fraudsters manipulate their victims into marking payments as legitimate businesses or government agencies.
These scams often come in different forms and can be as simple as a text message that appears to come from the victim’s bank.
According to UK Finance, there were 232,429 cases of APP fraud in 2023, with victims losing a total of £459.7 million.
Rocio Concha, director of policy and advocacy at Which?, said: ‘This decision puts us all at greater risk of being targeted by criminals, as it reduces the incentives for banks and payments companies to take fraud prevention seriously.
‘The regulator has shamefully sidelined victims of fraud, despite evidence showing that this decision can have a negative financial and psychological impact on them. Instead, the regulator has succumbed to a lobbying campaign by a few companies in the payments industry.’