Scam victims will get guaranteed refunds from banks under new scheme – but it comes with a warning

Banks will have to refund scam victims under a new compulsory scheme coming into place in October – but there are warnings it will simply encourage fraud and carelessness.

Compulsory repayment for Authorised Push Payment (APP) scams – when a fraudster tricks somebody into sending money – up to a maximum limit of £415,000 comes into force on 7 October, if all goes according to plan. This includes someone impersonating the police, a friend or family member, or even your CEO and convincing you to make an urgent payment. Other examples include using romantic interest to get someone to send money or sending fake invoices.

There were over 250,000 cases of APP fraud in 2023 costing Brits a total of £459.7m in 2023. In 2022 the average loss per person scammed was £2,340. Reimbursement is not compulsory at the moment, but a voluntary scheme means 67% of the money lost to APP scams was reimbursed in 2023.

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Banks vary on how much they reimburse scammed customers. TSB repaid 88% of the value lost to scams, compared with 73% for Santander and 17% for Salmon-carded upstart Monzo. Allied Irish Banks, the lowest, reimbursed just 9% of losses.

While it will mean more people can get their money back, there are warnings the new scheme could lead to less caution from customers.

“The banking sector supports reimbursement and is the only sector that reimburses victims of fraud, but we have raised concerns with the approach and the risk that the new reimbursement model could encourage complicit fraud and lead to consumers taking less caution when making payments, which may ultimately lead to increased consumer harm,” said Ben Donaldson, managing director of economic crime at UK Finance.

The Payment Systems Regulator, which is implementing the scheme, said it will be a “step change in fraud prevention.”

But to be reimbursed you must meet the “standard of consumer caution” – four tests which prove you’ve been careful. They are prompt reporting, information sharing with the bank, agreeing to the fraud being reported to the police, and paying attention to interventions and warnings from your bank.

These don’t apply to vulnerable customers. But your vulnerability must be such that it makes the consumer more susceptible to the scam, rather than general vulnerability, said Donaldson.

“Reimbursement is important in protecting customers from financial losses due to APP fraud, but it does not solve the wider problem of financial fraud,” Donaldson added.

“Victims of APP fraud still suffer the same psychological impact regardless of reimbursement and in addition, criminals continue to benefit from stealing these funds, which causes further harm to society.”

Some want the scheme to go further, with sanctions for the social media firms where fraud originates.

“The new rules only cover reimbursement, and so scam prevention must remain a priority for payment service providers, as without a consistent approach to prevention, the risk is that APP fraud – and consumer harm – will accelerate again,” said Anna Roughley, head of insight at the Lending Standards Board.

The new rules would “definitely” lead to a sea-change in fraud, said Arun Chauhan, a solicitor at Tenet Law specialising in fraud and financial crime and trustee director for the Fraud Advisory Panel. But he warned that consumers needed to be made aware of the risk of fraud.

“The risk is that criminals will see banks as insurance for their crimes, in other words that the banks will have to pay out,” he said.

“The fear of the banking industry will be that customers think the same, paying less attention to fraud risks, making transactions and thinking ‘the bank has to refund me so I do not need to be as careful anymore’.”

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