A wave of bank customers are winning huge payouts after battling declined refunds from scams and taking their case to the Financial Ombudsman.
It gives hope to scam victims who see their bank refuse to reimburse them, especially those caught in a loophole, meaning they lose the right to an automatic refund if they pay someone who later turns out to be a scammer.
When someone is unintentionally scammed, for example because their debit or credit card has been stolen, UK financial regulations require them to get a full refund from their bank.
But these rules are less clear-cut if the consumer has consented to the fraud, for example by voluntarily transferring money to someone who later turns out to be a fraudster.
Refund loophole: about half of all fraud is authorized and thus not covered by rules instructing banks to automatically refund fraud losses
Most banks have signed a voluntary agreement to refund customers in this situation, known as “authorized push payment” fraud, but the two-tiered system still results in many scam victims never getting their money back.
But hundreds of Britons are fighting their fraud refund battle against the Financial Ombudsman Service and winning, according to the This is Money analysis of FOS decisions.
Last year, the FOS sided with 370 consumers in battles with their major bank or credit card company, ordering them to issue refunds. This year there were already 86 well-founded cases.
Many consumers were successful in recovering cash, ranging from a few hundred pounds to hundreds of thousands.
JP Morgan clone fraud refund of up to £345,750
The FOS ordered Santander to repay £345,750 to a couple who fell victim to investment fraud by criminals posing as banking firm JP Morgan.
The couple, Mr and Mrs M, made three payments of £100,000, £45,750 and £200,000, tricked by a clone of the real banking giant – and the money went to Malaysia.
On each occasion, Santander employees called the couple to conduct fraud checks.
But when the scam came to light, Santander refused to pay a refund, stating that the duo should have done more checks on JP Morgan’s impostors before sending any money.
But the FOS ruled that Santander’s staff were not doing enough to prevent the fraud and that Mr. and Mrs. M. were “unwitting and innocent victims of a shrewd fraudster.”
Amazingly, Mr. and Mrs. M managed to convince the scammers to refund part of the money. But the FOS ordered Santander to pay back the rest, up to £345,750, plus £300 in compensation.
A Santander spokesperson said: ‘Santander has advanced fraud and scam detection and prevention to protect customers who fall victim to fraud, including blocking suspicious payments and contacting customers to provide scam alerts and confirm that transactions are legitimate. before payments are authorized.
“Unfortunately, when a customer becomes a victim of fraud, Santander supports customers in understanding what happened and trying to recover lost money, including refunding customers where appropriate.
“Customers should always think twice before transferring money and can find more information on how to spot scams on the Santander website.”
Initial instant repayment of £50,000 PLUS 8% interest
In another example, a First Direct customer recovered £50,000 this year after his bank refused him a refund.
The client, Mr. D, also lost the money to an investment scam in 2018, with First Direct questioning why he wanted to make the large payment.
Again, the FOS ruled that First Direct should have done more to discover if the payment went to a fraudster, pointing out that ‘the bank was the professional in financial matters; Mr D was a layman’.
The Ombudsman ordered First Direct to repay the full £50,000 plus 8 per cent interest.
A spokesperson for First Direct said: ‘Protecting customers from scams is an absolute priority for us.
“While this transaction came about in 2018, before the CRM code went into effect, it has been thoroughly researched and judged on its own merits.
“The CRM Code, which we signed up to from the start, introduced a significantly different approach, including more and more targeted customer alerts, and we adhere to the principles of the code when customers fall victim to scammers.”
Your consumer rights if you lose money due to fraud
There are two types of fraud: unauthorized and authorized.
Under the Payment Services Regulations, banks must pay victims of unauthorized fraud in full as long as they have not been what the FOS calls ‘grossly negligent’.
If you are refused your refund, you can file a complaint with the FOS.
Call 0800 023 4567 or fill out a form onlinewhich takes about 30 minutes.
If you are a victim of authorized fraud, your refund rights are weakened.
Technically, banks can refuse to pay out this type of fraud damage.
Most have signed a voluntary code to refund customers of this scam, but only if they have acted ‘appropriately’.
In practice, banks refuse to pay about half of the allowed fraud refunds.
TSB has its own refund guarantee, which promises to reimburse all innocent customers.
If you are a victim of authorized fraud and your bank or credit card company is not paying out, you can apply to the FOS in the same way as above.
A spokesperson for UK Finance said: ‘Fraud has a devastating impact on victims and the money stolen funds serious organized crime, so the primary focus of the banking and finance industry has always been on fraud prevention.
Since 2019, the APP’s voluntary code has been in effect and hundreds of millions of pounds have been refunded to thousands of customers who have been victims of fraud.
However, compensation alone does not solve the fraud problem. Banks have invested heavily in cutting-edge technology to protect customers, but more needs to be done, so it is vital that we take cross-sectoral action, including from online platforms, to tackle the threat at its source.”
Nationwide bitcoin block meant £300 recourse
Banks face a tough task when trying to strike a balance with fraud detection.
Too many checks and consumers feel unfairly controlled, while real transactions are blocked or take ages. Too little, and banks risk their customers losing money to scammers.
An example of a bank doing too many fraud checks happened in an April 2023 FOS ruling, when Nationwide Building Society stopped a customer from buying £50,000 of the cryptocurrency bitcoin.
Nationwide asked him to come to a branch for an interview and also had him sign a disclaimer, with a branch manager calling the transaction “super risky.”
But in the end, the construction company still refused to release the money.
The man argued that the Nationwide decision left him worse off as he missed out on potential bitcoin investment gains.
The client did not want compensation for any investment losses, but nevertheless approached the FOS for compensation.
The FOS ordered Nationwide to pay £300 to compensate the customer for his time.
A Nationwide spokesperson said: ‘Nationwide is taking a risk-based approach to payments to strike a balance between security and convenience.
“In cases where a payment is considered higher risk, such as a payment to purchase crypto assets, we may conduct further checks to ensure we are happy that the member is not being scammed. We always try to carry out these checks as quickly as possible.’
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