Moves to slash the amount of compensation offered to bank customers who fall victim to fraud have been slammed as “outrageous” by consumer campaigners.
Finance regulators and the government are understood to be drawing up proposals to reduce the maximum compensation available to victims from £415,000 to £85,000 in a move that would protect bank profits.
Consumer experts have accused the watchdogs of putting the financial interests of banking giants, who stand accused of failing to protect customers against scammers, ahead of those of victims.
The compensation regime is run by the Payment Systems Regulator (PSR) which has come under fierce lobbying from the big banks through their trade body UK Finance to reduce the maximum compensation available to customers.
The net effect of reducing the compensation levels will be to pass on millions of pounds in fraud losses to ordinary consumers rather than the banks.
Director of Policy and Advocacy at Which?, Rocio Concha, said: “It’s outrageous that the payments regulator is set to water down vital scam protections weeks before they were due to take effect and that this move follows months of lobbying from firms that refuse to take fraud seriously.
“Slashing the reimbursement limit risks exposing victims of the highest value scams to devastating financial and emotional harm and also significantly reduces crucial financial incentives for payments firms to put in place effective fraud security measures.
“This makes it more likely that scammers will continue to thrive on some payment platforms.”
Personal finance expert Paul Lewis, the presenter of BBC Radio 4’s Money Box programme, said: “Massive victory for banks which allow thieves to rob customers as @ThePSR is to slash the maximum they must reimburse customers who are victims under new rules that begin in five weeks as Labour ministers side with banks over their customers.”
Banking fraud where scammers pretend to be official bodies, such as banks, solicitors, the HRMC, or the police to con people into transferring cash to rogue accounts has soared in recent years.
In 2023, Britons lost £459.7mn to authorised push payment (APP) fraud, where someone was tricked into sending money from their bank account to a fraudster posing as a genuine payee.
Banks and payments companies currently reimburse, on a voluntary basis, customers for fraud at widely varying rates, with some refunding almost 100 percent of cases, and others less than 10 percent.
Details of the plans to scale back compensation were revealed by the Financial Times. It said the banking sector has been arguing that allowing compensation of up to £415,000 would make ordinary Britons more of a target for fraudsters.
Labour’s City minister, Tulip Siddiq, has reportedly expressed concern about the impact of the new system on the financial sector, while her Tory predecessor Bim Afolami said there were “significant problems” with the planned regime.
The industry had long argued that the £415,000 compensation limit was far too high and could encourage fraudsters to set up fake online deals with an accomplice, claiming maximum compensation from the payment provider and sharing the proceeds.
However, officials have pointed out that TSB has been offering a guarantee to reimburse any customers who are victims of payment fraud worth up to £1mn for the past five years.
In December, the PSR acknowledged that the compensation limit had “attracted a particularly high level of feedback” and said it might consult on revising the level ahead of October 7, which is when the new regime is due to come into effect.
A lower compensation threshold of £85,000 would bring the maximum sum protected in line with the financial services compensation scheme, which protects depositors if a bank goes bust.
Last month the PSR said last month there was a wide divergence between UK banks in the amount of payments fraud they were refunding to customers.
Some big banks, such as Nationwide and TSB, fully refunded more than 95 percent of lost funds, while others such as digital bank Monzo, Danske Bank and AIB fully refunded customers in less than 10 per cent of reported cases of “authorised push payment fraud”.
