Banks lobbying to cap payouts to fraud victims who lose life financial savings

Banks are quietly trying to water down vital new rules designed to protect fraud victims who are robbed of their life savings, Money Mail can reveal.

From October, banks will be forced to reimburse scam victims for losses of up to £415,000 under new rules from the payments regulator.

Until now, banks have only had to opt in to a voluntary scheme to reimburse customers hit by scams.

However, Money Mail can reveal banking chiefs yesterday held an emergency meeting with the City minister in a last-ditch bid to have the cap dramatically slashed.

Several big banks want the cap to be set at £85,000, sources said. Some smaller banks are understood to want the cap reduced to just £30,000.

This would mean thousands of elderly or vulnerable customers who are tricked into parting with their life savings will be left deeply out of pocket.

Nearly a quarter of all money stolen by fraudsters related to cases where victims lost more than £85,000, according to figures provided last year to the Payments Systems Regulator by banking trade body UK Finance.

Calculations by Money Mail show that victims would have lost out on £115.9 million to reimbursements if the cap was set at £85,000.

Meanwhile, new figures show fraud losses rose to £1.17 billion last year. The figures, published by UK Finance today, show the number of cases reported in 2023 surged by 12 per cent.

Rocio Concha, director of policy and advocacy at consumer group Which?, says: ‘It is shocking that, as this latest fraud data emerges, the Government seems to be shutting out scam victims and taking the side of banks and finance firms that want to slash reimbursement levels for authorised push-payment fraud and maintain an unjust system where they sit as judge and jury over victims at an incredibly distressing time in their lives.

‘If the Government is serious about its fraud strategy, it must back the regulator’s rules, which give the industry a strong incentive to put more effective security measures in place.’

The new rules for scams relate to all cases of ‘push-payment’ fraud, which is where victims are persuaded or tricked into authorising a payment to a fraudster. 

This includes online shopping scams, impersonation scams, romance scams or investment scams.

The first indication that banks were unhappy with the proposed £415,000 cap on reimbursements came last week in a letter from 30 companies — all members of The Payments Association, an industry group — to the Economic Secretary to the Treasury, Bim Afolami.

They claimed the upper reimbursement limit of £415,000 was ‘simply not proportionate’ and could be damaging to smaller payments companies.

Instead, they argued that banks should not be forced to reimburse any losses above £30,000, which they suggested was closer to the average loss.

Consumer groups and charities that support victims say they were locked out of discussions with City minister Mr Afolami. 

They expressed concern that ministers appeared to be taking the proposals to cut the cap seriously. Money Mail understands the payments regulator was also shut out of the meeting.

Mr Afolami is thought to believe there are ‘significant problems’ with the incoming rules.

Which? told Money Mail it believes companies leading the charge to reduce the cap to £30,000 are smaller payment companies – a sector that previously received warnings from the Financial Conduct Authority for failing to do enough to prevent fraud on their platforms.

Wayne Stevens, national fraud lead at charity Victim Support, warned cutting the maximum refund to £30,000 would leave victims ‘absolutely devastated’.

He added: ‘This would be a terrible outcome for fraud victims and would undermine the whole purpose of the reimbursement scheme. 

The new rules are supposed to ensure victims are reimbursed and banks have a financial incentive to prevent fraud.

‘Drastically lowering the threshold significantly reduces its effectiveness. Lowering the maximum level would also exclude huge numbers of victims, as it is fairly common for people to lose more than £30,000, sadly.’

The charity has long advocated for no upper limit to reimbursement. The Payment Systems Regulator (PSR) has indicated that it may revise the maximum claim level ahead of October if there is convincing evidence to do so. However, it has yet to see any, Money Mail understands.

The regulator has already been forced by banks into a U-turn on the cap. In September 2022, it proposed no maximum upper limit but was pressured into rowing back following backlash from payment companies.

The £415,000 limit was proposed in August 2023. PSR said around 99.98 pc of victims would fall within the cap and therefore be protected. Those who lost more than the cap would still be reimbursed up to this level and have to accept losses above it.

‘We believe that a cap of £415,000 strikes a balance between protecting and reimbursing nearly all consumers and protecting PSPs [payment service providers] from very large frauds that could affect their financial viability,’ it said. 

‘This should still incentivise PSPs to improve and maintain anti-fraud measures for all values.’

Rates of fraud at smaller banks and payment firms tend to be far higher than at traditional banks, the regulator warned last year.

Ten of these smaller firms were in the top 20 biggest receivers of fraud money in the UK. This means criminals are using these platforms to set up accounts and receive the proceeds of crime or as a way of moving the cash around.

A report by the PSR published in November revealed a dramatic variation in different banks’ willingness to reimburse victims. The best firms covered as much as 91 per cent of money lost, while the worst covered just 10 per cent.

The number of reported scam cases linked to authorised push payments (APP fraud) — where payments are sent under false pretences — rose by 12 per cent in 2023 to 232,429, according to UK Finance figures published today.

In total, £459.7 million was lost last year, down 5 per cent compared with the previous year.

Criminals are increasingly enticing online shoppers into so-called purchase scams, where a person pays in advance for goods or services that never arrive, with the number of successful attacks rising by 34 per cent to 156,000 — the highest total ever recorded.

The amount of money lost to this type of scam rose by 28 per cent to £85.9 million last year.

The number of reported cases of romance scams has also soared, rising 14 per cent last year compared with 2022. Victims lost a combined £36.5 million — up 17 per cent year-on-year.

Mr Stevens says victims of romance scams tend to lose large sums, spread over a number of smaller payments. Many could therefore be left significantly out of pocket if the limit is £30,000.

In response to the industry meeting with the Government, a spokesman at the PSR said: ‘We remain confident that this is the right approach, going further than ever before to safeguard consumers and shift the focus of all firms on strengthening their anti-fraud systems.’

A HM Treasury spokesman said: ‘It is important victims of fraud get reimbursed. Whilst the PSR is responsible for the new rules, the Government is aware of the strong concerns raised by industry, and we encourage the PSR to engage with these.’

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